An acreage home loan can help you buy a rural property, but only if it meets certain criteria.
If you’ve decided on a tree change and are looking to escape the city life for a more pastoral setting, it’s likely you’re looking at larger blocks of land. If you’re buying a rural property, you may find you need a special type of home loan called an acreage loan.
Acreage home loans, or loans for rural land, can be difficult to obtain. Your approval largely relies on two things: the size of the land and what you’ll be using it for.
Lenders can be hesitant when it comes to the size of the land you’re purchasing. This is because larger lots are often used for commercial farming purposes, which requires a commercial home loan.
The size of the land you’re buying will often dictate the size of deposit you need. With land below 10 hectares, your loan is likely to be treated like any other residential home loan, and you may be able to borrow up to 95% of the value of the property you’re purchasing.
Some lenders may require only a 5% deposit for land up to 50 hectares. However, if you’re buying land larger than this, you’re likely to need a 20–30% deposit.
Properties above 100 hectares in size are unlikely to find residential home loan financing. Lenders often consider these properties to be commercial farms, even if you don’t intend to produce income from farming.
Your use of the land
The reason lenders tend to scrutinise the size of rural land purchases is because it often informs the use of the land.
Land that is above a certain size is seen as income producing, meaning it’s classed as a commercial farm. Properties like this require a commercial loan, which can be much more complicated to obtain than a residential loan.
However, this doesn’t mean you can’t use the land for any farming activities. Lenders will generally allow the use of land for “hobby farms”, or farming activities that aren’t a main source of income.
This means you may be able to keep a limited amount of livestock on your land, and even grow and sell crops. Lenders tend to define “income generating” activities on rural land as agricultural activities that generate more than $20,000 per annum in income. Moreover, if you will rely on agricultural activity to service your acreage home loan, your property is likely to be classed as a commercial farm and you will need a commercial loan.
But you can carry on activities like raising and selling a few head of livestock or even selling some fruit and vegetables at farmers markets. As long as you don’t exceed the threshold of income generating agricultural activities and the size of the land is small enough, your purchase will likely fall into the hobby farm category.
A note on residential rural property and valuations
If you do establish a hobby farm, it’s important to note that a valuation of your property will not take into account any agricultural equipment, buildings or improvements you’ve made to the land. Because the land is classed as residential, valuers will only consider the land and residence.
If you’re looking to make a lifestyle change and get out of the hustle and bustle of the city, an acreage home loan could be the solution for you. But before you apply, make sure the property you’re purchasing fits within lenders’ criteria.
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