Land in Lieu Loans - How they work!
LAND HOME vs LAND IN LIEU LOANS – 4 August 2026
Land Home Loans are when a buyer is purchasing both a tract or acreage of land and a home in the same purchase / closing. The lender will have a mortgage on the land and a lien on the home title. In most cases, land and home purchases require a down payment.
Note – some lenders surrender the title which will only require the lender to place a mortgage on the property.
Land in Lieu Loans are when a consumer owns a tract or acreage of land and pledges this property in lieu of providing a cash down payment. The property does not have to be free and clear to qualify for a land in lieu loan. Often times, buyers can use the equity in the land in place of coming up with a down payment.
For example:
Mrs Smith owns 5 acres of land in Central Oklahoma. The amount owed on this 5 acres is $15,000. Let’s say this same 5 acres is valued at $45,000.
Mrs Smith has $30,000 of equity in this property. Mrs Smith wants to purchase a new home and the new home price is $120,000.
Mrs Smith has enough equity in her land to meet her down payment required percentage. In this case, let’s say 10%, which is $12,000. This is not a reduction in loan amount, but it’s money Mrs Smith does not have to come up with to meet the lender’s required down payment of 10%.
Note – Often times the down payment requirement is only 5%. Lenders set the down payment requirement based mostly on credit score.
The current $15,000 balance owed on the land will be paid off at Mrs Smith’s closing on her new home by the new land in lieu lender. Her new loan amount will be approximately $135,000. (not counting closing costs title company or lender fees). The lender will have a mortgage on the land and a lien on the home title when using the land in lieu of down payment option.
Note – some lenders surrender the title which will only require the lender to place a mortgage on the property.
Please know, land can be gifted and deeded for consumers who currently don’t have land to pledge in lieu of a down payment loan.
You can always give us a call with more questions at 405-527-5669 or email us at jonlawson@midstatehousing.com