Land Acquisition & Development Loans: From Raw Land to Shovel-Ready

Before you can build up, you have to build out. We finance the foundation phase that transforms raw land into shovel-ready development opportunities.

Before You Can Build Up, You Have to Build Out. We Finance It.

For real estate developers, the most significant value is created long before the first wall is framed. It's created in the dirt—transforming raw, unentitled land into shovel-ready lots. This is horizontal construction, the foundational phase of any development that includes grading, utilities, roads, and sewers.^[1] Yet, this is precisely the stage where traditional financing disappears. Banks see raw land as a high-risk, non-cash-flowing asset and are unwilling to fund the vision it represents.^[3]

This financing gap is where opportunity is lost. Developers with the vision to entitle and develop land are often blocked by lenders who lack the expertise to underwrite future value. Land acquisition and development loans from private capital sources are the definitive tool to bridge this gap. These specialized, short-term loans provide the capital to purchase land and fund the horizontal improvements needed to make it buildable and profitable.^[5]

At Clear House Lending, we connect you to a network of lenders who specialize in the complexities of land development. They don't just see a vacant parcel; they see a future subdivision, an industrial park, or a retail center. They have the expertise to fund your project from raw dirt to finished lots, providing the critical capital that turns vision into value.

How Land Development Loans Work: Funding the Foundation of Your Project

Land acquisition and development (A&D) loans are structured to meet the unique, phased nature of site preparation. Unlike a standard mortgage, which provides a lump sum at closing, A&D loans are designed to fund the purchase and then disburse additional capital as you hit key infrastructure milestones.^[5]

This structure is built on two key components that align the lender's capital with your project's real-world progress:

1. The Draw Schedule for Horizontal Improvements: After funding the initial land acquisition, the remaining loan amount is held back to cover the "hard" and "soft" costs of development.^[5] These funds are released in stages, or "draws," as you complete specific work. A third-party inspector visits the site to verify progress before each draw is released, ensuring funds are disbursed for completed work only.^[8] This protects both you and the lender by tying funding directly to tangible progress.
   • Initial Draw: Land Acquisition
   • Subsequent Draws: Grading and site clearing, installation of sewer and water lines, paving roads and curbs, running electrical and communications infrastructure.^[5]
2. The Lot Release Clause: For developers planning to sell finished lots to builders, the lot release clause is a critical mechanism. This pre-negotiated provision in the loan agreement allows you to sell individual lots and use a portion of the sales proceeds to pay down a corresponding part of the loan. Upon payment, the lender "releases" that specific lot from the blanket mortgage lien, giving the new buyer a clear title.^[11] This allows you to realize profits and reduce debt as you sell parcels, without having to pay off the entire loan at once.

At a Glance: Land Development Loans vs. Traditional Bank Loans

Strategic Scenarios: When a Land Development Loan Is Essential

A land development loan is the catalyst for turning a passive land holding into an active, high-value development project. It is the essential tool for developers who create value from the ground up.

Scenario 1: The Subdivision Play

• The Situation: You identify a large parcel of raw, un-zoned land on the edge of a growing suburb. Your plan is to get it entitled, subdivide it into 50 single-family lots, install the necessary roads and utilities, and sell the finished lots to homebuilders.
• The A&D Loan Solution: A land development loan provides the capital to acquire the parcel and funds the entire horizontal construction process through a draw schedule. The loan is underwritten based on the projected sell-out value of the finished lots. As you sell lots to builders, the lot release clause allows you to pay down the loan in phases, generating profit along the way.^[13]

Scenario 2: The Industrial Park Development

• The Situation: You have a contract on a parcel of land zoned for industrial use, but it lacks utility access and roads. Your business plan is to complete the site work to create several "pad-ready" sites for warehouses or light manufacturing facilities.
• The A&D Loan Solution: The loan covers the acquisition and the significant cost of bringing heavy-duty power, water, and sewer to the site, as well as constructing access roads capable of handling truck traffic.^[10] Once the horizontal work is complete, you have multiple exit strategies: sell the improved pads to owner-users, build spec warehouses using a vertical construction loan, or secure a long-term loan to build and hold the park yourself.

Scenario 3: The Entitlement Flip

• The Situation: You find an undervalued and overlooked parcel in a prime location, but it's currently zoned for agricultural use. You have a well-researched plan to get it rezoned for a higher and better use, such as multifamily or retail, which would dramatically increase its value.
• The A&D Loan Solution: While riskier, some specialist lenders in our network will fund the acquisition of unentitled land based on a strong developer track record and a credible entitlement strategy.^[4] The loan provides the capital to purchase the land and cover the soft costs associated with the rezoning process (legal, architectural, engineering fees).^[14] The exit strategy is to sell the now fully-entitled, "shovel-ready" site to a vertical developer for a significant profit, without ever breaking ground.^[15]

The Clear House Lending Advantage: Funding Deals Banks Won't Touch

Financing land is one of the most challenging hurdles in real estate development. The market is opaque, and the few lenders who operate in this space are highly specialized and difficult to find.^[4] This is where our network provides a decisive edge. We don't just find a lender; we create a competitive environment among capital sources who specialize in land and understand its unique risks and rewards.

• Access to Specialist Lenders: Most banks have zero appetite for land loans. Our network includes private funds and specialized lenders who have dedicated programs for land acquisition and development. They know how to underwrite entitlement risk and future value, enabling them to fund deals that traditional institutions immediately reject.^[4]
• Certainty of Execution: We match your project with lenders who have a proven track record of funding similar deals. This eliminates months of wasted time and positions your project for a fast "yes" from a capital partner who understands your business plan from day one.
• Structuring Expertise: A&D loans are complex. Our role is to help structure your request—from the budget and draw schedule to the lot release provisions—in a way that meets the requirements of lenders and aligns with your exit strategy.
• Competitive Terms: By bringing your project to a curated group of qualified lenders, we force them to compete. This competition results in better leverage, lower rates, and more flexible terms than you could achieve on your own.^[16]

Qualifying for a Land Development Loan: What Lenders Really Care About

Underwriting for a land loan is a forward-looking assessment of your business plan, your team's ability to execute, and the project's ultimate profitability. Lenders are investing in your vision and your credibility as a developer.

Pillar 1: The Project Fundamentals (The "What")

• Entitlement Status: This is the most critical factor. Is the land "raw" (un-zoned and un-permitted) or "entitled" and shovel-ready? Lenders view entitled land as significantly de-risked and will offer much higher leverage and better terms.^[4] For raw land deals, the credibility of your entitlement plan is paramount.
• The Development Plan & Budget: You must provide a detailed, credible plan and budget for all horizontal improvements. This includes a breakdown of hard costs (grading, utilities, paving) and soft costs (engineering, permits, legal fees).^[17]
• Appraisal & Valuation: The loan amount will be based on an appraisal that considers both the "as-is" value of the land and the projected "as-complete" value after the horizontal improvements are finished.^[17]

Pillar 2: The Borrower's Execution Ability (The "Who")

• Developer Experience: A proven track record of successfully completing similar land development projects is crucial. Lenders need to see that you can navigate the complexities of the entitlement and construction process.^[19] First-time developers may be considered but will likely need to show more equity in the deal or partner with an experienced team.
• The Team: Lenders will vet your chosen civil engineer, general contractor, and other key professionals. A strong, experienced team provides confidence that the project will be executed on time and on budget.^[17]
• Financial Strength & Equity: Land loans are higher risk, and lenders will expect you to have significant "skin in the game." Be prepared to contribute 25% to 50% of the total project cost in cash equity, depending on the entitlement status of the land.^[4]

Pillar 3: The Exit Strategy (The "How")

• The Most Critical Question: The lender's primary concern is how they will be repaid. Your exit strategy must be clear, viable, and supported by market data from day one.
• Viable Exits:
  • Sale of Finished Lots: A plan to sell subdivided and improved lots to builders. This must be supported by market analysis showing demand and comparable lot sales in the area.
  • Refinance into a Vertical Construction Loan: A plan to transition from the land loan into a new loan to fund the construction of buildings on the improved lots.

Conclusion: The First Step to a Successful Development is the Right Capital

In real estate development, value is not found; it is created. Horizontal construction is the first, most critical phase of this value creation process. Don't let a lack of specialized financing prevent you from capitalizing on your next land development opportunity.

Navigating the world of private land financing alone is inefficient and uncertain. Clear House Lending provides the access, expertise, and competitive leverage to secure the right capital for your project. Our network of 1800+ lenders includes the specialists you need to fund your vision, from acquisition to entitlement to shovel-ready completion.

Your Next Project Starts Here.

Land Acquisition & Development FAQs

1. What's the difference between a land development loan and a construction loan?

A land development loan (or A&D loan) is for "horizontal construction"—buying the land and installing the necessary infrastructure like roads, sewers, and utilities to make it buildable.^[6] A construction loan is for "vertical construction"—funding the materials and labor to build the actual structures (houses, office buildings, etc.) on the already-prepared land. The A&D loan is the first step, and the construction loan is the second.

2. Can I get a loan for raw, unentitled land?

Yes, but it is more challenging. Financing for raw land typically comes with higher interest rates and requires a larger down payment (often 40-50%) due to the increased risk associated with the entitlement process.^[4] Our network includes specialist lenders who are experienced in underwriting this risk for developers with a strong track record and a viable plan.

3. What are typical interest rates and terms for a land development loan?

Land development loans are short-term, typically ranging from 1 to 3 years. Given the higher risk, interest rates are higher than traditional mortgages, often in the 8% to 12% range as of late 2025, depending on the project, location, and borrower strength.^[21] Our network model creates competition to help secure the most competitive rate possible.

4. How much equity or down payment is required?

Lenders are more conservative on land loans due to the lack of existing cash flow. Expect to contribute between 25% and 50% of the total project cost (land purchase plus horizontal improvements) as a down payment. The exact amount will depend on the entitlement status of the land—fully entitled, "shovel-ready" projects require less equity than raw land deals.^[4]

5. Why should I use Clear House Lending instead of going directly to a lender?

Access, Expertise, and Leverage. Many of the most active land lenders are private funds that do not work directly with the public and can only be accessed through a trusted capital advisor.^[16] We provide direct access to this hidden market. Furthermore, we have the expertise to structure your complex A&D loan request for success and the leverage to make lenders compete, ensuring you get the best terms the market has to offer.