Thinking about buying acreage or a buildable lot near Nashville but unsure how to finance it? You are not alone. Land lending works differently than traditional mortgages, and the rules can feel confusing if you are new to it. In this guide, you will learn the main loan options, typical down payments, what lenders expect in Davidson County, and how construction-to-permanent loans work. Let’s dive in.
Loan options for land near Nashville
Raw land loans
Raw land has no utilities, no road access, and no site improvements. Lenders view this as higher risk because there is no structure to secure value and more unknowns on buildability. You will often see shorter terms, higher rates, and larger down payments. Buyers use raw land loans when they plan to hold the parcel longer, complete feasibility work, or prepare the site before switching to construction financing.
Lot loans for build-ready parcels
A lot loan fits when the parcel is improved or close to build-ready. That usually means confirmed road access and available utilities like water, sewer or septic feasibility, and electric. Because risk is lower, lenders tend to offer more favorable terms than for raw land. If you are ready to build within a reasonable timeline, a lot loan can look closer to a traditional mortgage.
Construction and construction-to-permanent loans
Construction loans fund the build itself. With a construction-to-permanent, also called a single-close loan, you close once. The lender funds the build in draws, you pay interest-only during construction, then the loan converts to a long-term mortgage when the home is complete. A two-close setup means you have a separate construction loan and a separate permanent mortgage later. Lenders require a licensed builder, detailed plans, a line-item budget, and inspections tied to each draw.
Owner financing
Sometimes a seller will finance the purchase directly. This can work well for rural or private transactions where bank financing is tough. Terms are flexible and negotiated with the seller. Many sellers ask for a meaningful down payment to protect their position.
Home equity or local portfolio loans
If you have equity in a current home, a home equity loan, HELOC, or cash-out refinance can fund a land purchase. Local community banks and credit unions around Nashville also offer portfolio loans. These lenders keep loans on their books and can underwrite flexibly, especially for improved lots or well-documented projects.
What lenders look for in a parcel
Lenders dig into the details of a lot before approving financing. A few items matter across Davidson County and nearby suburbs:
- Access and frontage: Public road access or a recorded easement is essential.
- Utilities: Water, sewer or septic feasibility, and electric availability. The more confirmed, the better.
- Topography and soils: Steep slopes or poor soils raise risk. Some lenders request geotechnical reports for building.
- Septic/perc test: If there is no sewer, a successful perc test is often required.
- Floodplain or wetlands: FEMA flood zones bring higher insurance and mitigation requirements. Wetlands can limit buildability.
- Title and survey: A recent boundary survey and clean title with no unresolved liens or easements.
- Zoning and permits: Confirm that the lot is buildable and that your plan aligns with local zoning. For construction loans, lenders want approved plans and permits or a clear timeline.
Typical down payments, rates, and terms
Exact offers vary by lender and market conditions, but common ranges look like this:
- Raw land: Often 30 to 50 percent down. Terms can be 5 to 15 years, sometimes with balloons or interest-only features.
- Improved lot: Often 20 to 30 percent down. Terms may be closer to standard 15 to 30 year amortizations if the lot is truly build-ready.
- Construction-to-permanent: Often 20 to 25 percent down, plus a contingency reserve. The construction phase is usually interest-only, then converts to a 15 to 30 year mortgage.
- Interest rates: Land and construction loans typically carry higher rates than conventional mortgages, often by about 0.5 to 2.0 percentage points. Portfolio lenders can be competitive depending on your credit and the parcel.
- Fees and reserves: Expect higher closing costs, draw administration or inspection fees for construction, and possible reserve requirements to cover housing and project costs.
Your credit score, income, debt-to-income ratio, the parcel’s characteristics, and your builder’s credentials all influence terms.
Construction-to-permanent loans explained
A single-close construction-to-permanent loan can save time and reduce risk.
- One closing: You underwrite and close once. During construction, you make interest-only payments on funds drawn. When the home is complete, the loan converts to a standard mortgage.
- Lender draws and inspections: Funds are released in stages such as footings, framing, and drywall. Each draw usually requires inspection and lien waivers.
- Underwriting: The lender reviews your builder’s license and insurance, the signed construction contract, the plans and specifications, and your contingency. The appraisal is based on the as-completed value.
- Rate strategy: Some programs lock the permanent rate at closing. Others lock near completion. The timing matters for your budget and risk tolerance.
- Added costs: Expect inspection fees, administration fees, and potential higher origination fees. These are normal for construction lending.
Nashville-specific factors to plan for
Building around Nashville brings local rules and logistics that affect financing and timelines.
- Permitting and codes: Metro Nashville’s Codes and Building Safety process includes zoning review, permits, and inspections. Lenders often want evidence of permit progress before major disbursements. Plan extra time in your schedule.
- Sewer vs septic: Many Davidson County areas connect to Metro water and sewer, but outlying parcels may need septic. Confirm early whether sewer is available and what the tap fees will be. Septic feasibility and perc results can make or break a loan.
- Floodplain and buffers: Some parcels sit in flood zones or near stream buffers. This can add elevation, insurance, or mitigation costs and can affect lender approval.
- Urban infill vs acreage: Inside Davidson, you may find infill lots that are closer to build-ready. On the fringe or in neighboring counties, larger acreage may bring different county rules and utility needs. Lenders and appraisers will weigh local comparable sales when valuing the property.
- Local lenders and builders: Community banks and credit unions familiar with Middle Tennessee often provide practical portfolio solutions. A Nashville-area licensed builder who knows Metro permitting and inspections helps streamline underwriting and draw requests.
How to get ready to apply
Preparation reduces surprises and can improve your loan terms.
1) Complete parcel due diligence
- Order a recent boundary survey.
- Get a title commitment and check for liens or easements.
- Confirm zoning and building setbacks.
- Review FEMA flood maps and any floodplain issues.
- Verify utility availability and estimate tap or extension fees.
- If sewer is not available, schedule a perc test and document results.
2) Organize your finances
- Check your credit and aim for strong scores for better LTV options.
- Gather income docs, tax returns, bank statements, and proof of reserves.
- Document your down payment source and any gift funds with proper letters.
3) Line up your builder and plan
- Choose a licensed builder and secure a signed construction contract.
- Prepare plans, specs, and a line-item budget with a realistic timeline.
- Set aside a contingency, often 5 to 15 percent of the construction budget.
4) Shop lenders early
- Include at least one local community bank or credit union.
- Ask each lender about underwriting differences for raw land versus improved lots.
- Get prequalified and request a checklist of parcel conditions that would disqualify the deal.
5) Consider interim strategies
- If you need time before building, evaluate a raw land loan or owner financing.
- If you have significant home equity, compare a HELOC or cash-out refinance to reduce borrowing costs.
- Budget for holding costs such as taxes, insurance, and interest if the land sits.
Common pitfalls to avoid
- Skipping the perc test on a non-sewer parcel. A failed test can stop a loan cold.
- Assuming utilities are available without written verification. Tap fees and extensions can be expensive.
- Overlooking floodplain or wetlands that limit buildability. Insurance and mitigation can change your budget.
- Ignoring title or access issues. No legal access or unresolved easements can prevent financing.
- Choosing a builder without the right license, insurance, or documentation. Lenders verify builder credentials.
Your next steps
If you are serious about land near Nashville, start with the lot’s buildability and a realistic construction budget. Then talk to two or three lenders, including at least one local portfolio lender, to compare down payments, rates, and draw processes. With the right prep and the right team, you can secure land and move into a construction-to-permanent loan with less stress.
Need help finding a build-ready lot, coordinating due diligence, or connecting with local lenders and builders? Reach out to D Santos Gonzalez for a friendly, bilingual consultation and a clear plan for your land purchase.
FAQs
Can I use FHA or VA for a land-only purchase in Nashville?
- Generally no. FHA and VA programs typically require a completed dwelling, and land-only purchases are not their focus. Some VA construction options exist, so confirm with a VA-approved lender.
How do lenders treat large acreage versus a small lot near Nashville?
- Large acreage is often underwritten differently, sometimes as agricultural or investment property. Expect larger down payments and more conservative terms.
How long does a construction-to-permanent loan take from application to close?
- Plan for at least a month or more, depending on underwriting, an as-completed appraisal, and permitting progress. Build time and draw inspections are separate.
What issues most often derail a land loan approval in Davidson County?
- Lack of legal access, missing utility verification, severe floodplain or wetlands, poor soils or topography, and title problems are common deal killers.
Who typically offers the best terms for land or lot loans around Nashville?
- There is no single best source. Community banks, credit unions, and regional lenders that know Middle Tennessee often provide the most flexible portfolio options.
What down payment should I expect for an improved lot in the Nashville area?
- Many lenders ask for 20 to 30 percent down on a build-ready lot, with terms that can be closer to a standard mortgage.
What is the main benefit of a single-close construction-to-permanent loan?
- One closing can reduce total closing costs and simplify the process. You pay interest-only during construction, then convert to a long-term mortgage when the home is complete.
