Why do lenders cap land LTV at 70% or lower?

Question

Turnrow Capital · Accepted Answer

Land LTV caps at 65–70% because land is illiquid and its value can swing with commodity prices, water, and interest rates. The 30%-plus equity cushion covers a distressed sale discount, carrying costs, and legal expenses if a loan defaults. Houses get 80–97% LTV because they sell fast; land does not.

Work the math from the lender's chair. If a loan defaults, the lender faces 12–24 months of foreclosure timeline depending on the state, property taxes and insurance during that period, legal fees, broker commissions, and usually a 10–20% discount to move a large parcel quickly. Stack those costs and a 70% loan can approach 100% of net recovery. That is why 70% is a ceiling, not a starting point.

Farmland values are also cyclical in ways houses are not. Midwest cropland fell roughly 25% in nominal terms during the 1980s farm crisis and took a decade to recover. Lenders who survived that era wrote the LTV rules everyone still uses.

The cap works in your favor too. Borrowers who default at 70% LTV usually still walk away with equity after a sale, because the cushion belongs to you until it is spent. Thin-equity loans are where borrowers get wiped out.