Quick Answer — How Do Land Loan Payments Work?
A land loan uses the ordinary amortisation formula, but with harsher inputs than a home mortgage: a bigger down payment, a rate typically 1 to 3 points above mortgage rates, and often a balloon long before the schedule ends.
- Loan Amount = Land Price − Down Payment
- Monthly Payment = Loan × [ r(1+r)ⁿ ] ÷ [ (1+r)ⁿ − 1 ]
- Cash to Close = Down Payment + Closing Costs
- Balloon Balance = the remaining principal on the balloon date, due in one lump
Worked example: a $120,000 parcel with 25% down ($30,000) leaves a $90,000 loan at 75% LTV. At 8.25% over a 20-year amortisation the payment is $766.86 a month, total interest is $94,046.18, and total paid over the schedule is $184,046.18. Add 3% closing costs ($3,600) and cash to close is $33,600, with a total cost of the land of $217,646.18.
Down payments scale with how developed the parcel is. Improved lots with utilities and road access commonly need 20%; unimproved land more; raw land with no services frequently 35% to 50%. The less a lender can resell easily, the more of your own money it wants in front of its own.