Texas Land Loans: What You Should Know

As the second-largest U.S. state by land area and population, Texas presents extensive land investment potential. From a real estate perspective, its sheer size and growing population mean more opportunities to invest in diverse asset classes, from suburban residences to ranches and farms in rural areas.

Purchasing land in Texas offers flexibility. While some buyers plan to build a home in the next few years, others may want a recreational property or a long-term investment. Regardless of your real estate goals, land loans can help you achieve them.

However, financing land isn't the same as getting a traditional mortgage. A land loan has different requirements, timelines, and risks that should be considered carefully. If you're exploring your options, this guide can help you understand how Texas land loans work and what to expect from the process.

First State Bank offers Land & Lot Loans to help Texans secure the property they need for their long-term goals. To learn more and apply for financing, contact 940-665-1711 or request a callback through our online form.

What Is a Land Loan?

A land loan is used to purchase property that does not currently have a home or other permanent structure. Unlike traditional mortgages, land loans are secured by the land alone. That means the land's location, infrastructure, and condition carry more weight in the approval process.

Types of Land Loans in Texas

In Texas, land is rarely just labeled "vacant." Lenders typically categorize parcels of land based on the infrastructure available, their location, and the intended use.

More importantly for potential buyers, land types influence which loan type they can apply for. These classifications directly impact your loan terms, interest rates, and down payment requirements.

Here are the most common types of Texas land loans available:

Raw Land Loans: These apply to completely undeveloped land. There are no utility connections, paved roads, or site improvements. Because raw land lacks infrastructure, lenders often require a higher down payment and offer shorter loan terms.
Unimproved Land Loans: This category includes land with limited access or some minor improvements. You might find a gravel road or partial utility availability, but it's still considered early-stage in terms of development.
Improved Lot Loans: Residential land loans are for residential lots within a platted subdivision. Utilities are typically available, and the lot is ready, or nearly ready, for home construction.

Knowing which loan aligns with your intended property purchase will help you set realistic expectations when applying and ensure you're working with the right lender from the start.

Reasons To Buy Land in Texas

People purchase land in Texas for reasons ranging from personal use to investments. With various property types and relatively low taxes, the state attracts buyers looking for flexibility and future growth potential.

Common motivations for buying land in the state include:

Building a home in the future, especially if there's no immediate plan to start construction
Creating recreational space for hunting, fishing, camping, or off-grid use
Investing in land in areas that are growing or likely to be developed
Holding property in the family for personal or generational use

What Lenders Consider Before Approval

The application process and requirements for land loans are different in many ways from those for a regular mortgage. Because Texas land loans carry different risks than home mortgages, lenders take a more detailed look at the property and your financial situation. This is true even for residential land loans for properties in platted areas. Knowing what they evaluate can help you better prepare and increase your chances of approval.

Here are the main factors lenders typically look at:

Credit Score: Lenders review your credit history to assess your ability to repay your land loan.
Debt-to-Income Ratio: Lenders look at how your monthly debt compares to your income to ensure you can manage payments.
Intended Use: Whether you plan to build, hold, or use the land recreationally can influence terms.
Down Payment: Lenders typically require 20% or more, depending on the type of land.
Zoning and Property Access: Key considerations are local zoning laws and whether the land has legal access and road frontage.
Appraised Value: An independent appraisal helps confirm the property's market value.
Utility and Infrastructure Access: Land with existing utilities may be considered less risky for lenders.

Some lenders may also require a recent land survey and title insurance to verify boundaries and ownership history.

How To Prepare for a Land Loan Application in Texas

Whether you've already found the land or are still narrowing down your options, a bit of preparation can streamline the application process. By gathering the correct information early, you'll be in a stronger position when it's time to submit your loan request.

Review Zoning and Restrictions: Each county or municipality sets its own land-use rules. Make sure the land is zoned for your intended use and doesn't come with limitations that could affect your plans.
Obtain a Recent Survey: A land survey confirms legal boundaries and identifies easements or encroachments.
Consider Septic, Well, and Water Access: Many rural lots are not connected to city water or sewer systems. Installing a well or septic system may require permits or inspections.
Clarify Your Purpose and Timeline: Know if you'll be building within a few years or holding the land indefinitely.
Mineral Rights: In Texas, it's common for surface and mineral rights to be sold separately. Be clear on what is included in your purchase.
Collect Financial Documentation: Have tax returns, bank statements, and employment records ready to demonstrate financial readiness.
Budget for Additional Costs: Closing fees, insurance, and due diligence expenses should be included in your total investment.

These details may not be evident during a property tour, which makes due diligence and professional guidance especially important when buying land in Texas.

For example, if you're unsure about zoning or land access, speak with a local bank early in your search. Local lenders often know which areas have common restrictions, utility challenges, and other issues. Getting this information upfront can help you avoid buying a property that can't be developed or used the way you planned.

Why Work with a Texas-based Community Bank

Financing land can be more complex than taking out a traditional mortgage, especially when the property isn't developed yet. That's why many buyers choose to work with lenders knowledgeable about the region, such as community banks.

Here are some potential benefits of choosing a Texas-based lender:

Regional Insight: A local lender may better understand property values and land use patterns in rural counties or developing areas.
Easier Communication: You'll have access to loan officers who can answer questions, explain the process, and help you prepare documentation.
Ongoing Support: Community banks often build lasting relationships with customers. If your plans include future construction, you can ask about additional loan options when the time comes.

At First State Bank, we've helped Texans secure land for generations. We understand the local challenges and opportunities and are here to guide you through the process, not just today, but for years to come.

Explore Land & Lot Loans at First State Bank

Once you're ready to secure property in Texas, turn to First State Bank. We offer Land & Lot Loans for unimproved residential lots or acreage with plans to build later. Our team can walk you through the process and answer your questions about our qualifications and loan terms. *

To get started, call us at 940-665-1711 or send us a message.

*All loans are subject to credit approval. Terms and conditions apply. Contact First State Bank for more information.