Land Loans vs. Construction Loans: Key Differences Every Developer Should Know

Short answer:

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Land loans are used to finance the purchase of raw or entitled land, while construction loans finance the cost of building on that land. Each loan type has unique terms, risk levels, and lender expectations—and knowing the difference can save you time and money.

Whether you're subdividing in Collin County or building a spec home in Dallas, choosing the right loan for the right stage is critical.

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What Is a Land Loan?

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A land loan is used to purchase undeveloped or partially developed property. These can range from raw acreage to shovel-ready lots with approved entitlements.

Lenders like Silverton Capital typically look at:

• Location and zoning
  
• Access to utilities and roads
  
• Market value and exit strategy
  
• Your experience with land or development
  
• Entitlements or feasibility reports (if available)
  

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Common land loan use cases:

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• Buying raw land for future development
  
• Acquiring infill lots for resale
  
• Purchasing farmland to rezone
  
• Holding land while waiting on permits or design
  

Because raw land has no cash flow, these loans carry more risk. Expect slightly higher interest rates and shorter terms (usually 12–24 months). Down payments may also be higher—often 35–50%.

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What Is a Construction Loan?

Once you're ready to build, you’ll need a construction loan—also known as a ground-up or vertical loan.

These are typically draw-based loans, where funds are disbursed in stages as work is completed. Lenders will assess:

• Approved building plans
  
• Construction budget and timeline
  
• Contractor experience and licensing
  
• Permit status
  
• Borrower experience and exit strategy

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Common construction loan use cases:

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• Building a single-family spec home
  
• Developing a duplex or triplex
  
• Vertical build after subdividing land
  
• Custom home builds before resale or refi
  

Construction loans usually require inspections or documentation between draws. The faster and cleaner your paperwork (photos, invoices, progress updates), the smoother the funding process.

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Key Differences at a Glance

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When to Use a Land Loan vs. Construction Loan

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Use a land loan when:

• You’re buying land before designs or permits are finalized
  
• You want to hold a lot while securing zoning or entitlements
  
• You’re assembling parcels for a larger future project
  
• You’re preparing for resale (flipping the land)
  

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Use a construction loan when:

• You have approved plans and are ready to build
  
• You’re working with a licensed builder or GC
  
• Permits are nearly or fully approved
  
• You’ve lined up materials and subs for a clear timeline
  

Sometimes, a borrower may start with a land loan, then roll into a construction loan with the same lender—especially if the timeline stretches or funding phases evolve. Silverton Capital can help with this type of project staging.

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The Role of Private Lenders Like Silverton Capital

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Traditional banks often shy away from land or ground-up loans unless the borrower has extensive experience and a near-perfect file. That’s where private lenders step in.

At Silverton Capital, we:

• Fund land and construction loans across Dallas, Tarrant, and Collin counties
  
• Move quickly—closings in days, not weeks
  
• Accept unique projects banks won’t touch
  
• Work with first-time developers and seasoned pros alike
  
• Allow interest-only payments for cash flow flexibility
  

Apply here to see what’s possible for your land or build project.

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Final Thoughts

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Understanding the difference between land loans and construction loans helps you:

• Choose the right financing path
  
• Avoid missteps in planning or underwriting
  
• Present a more professional package to lenders
  
• Set realistic expectations for timeline and cash flow
  

Whether you’re buying land for future development or ready to break ground next month, align your financing with your project’s phase.

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Need flexible funding for land or new construction?

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Start your application with Silverton Capital today—we’ll help you get the right loan for the right stage.

This article is for informational purposes only and is not intended to serve as legal, financial, or investment advice. Please consult with a licensed professional before making financial decisions.