For those looking to get away from the city and start a new chapter living life on the land, a rural home loan might be able to help you get there.
If you’re dreaming about clean air and peaceful nights, if you want to raise kids away from the city or enjoy your retirement in tranquility, there’s a chance you’ll need to need to find out about specialised rural home loans.
Rural home loans are specialised loans designed to help people buy rural properties for personal or business use. If you think you might need such a loan, it’s important to educate yourself about how to choose the best rural home loan for you.
How do rural home loans work?
A loan for a rural property can be used for both business and personal purposes. Often described as a hobby farm, it’s not generally easy to get approved for. With Australia’s history of droughts, the global economic downturn and an unstable rural property market, many banks and lenders just aren’t willing to take the risk. However, if you are looking at a hobby farm or a residential rural property and don’t plan to turn your new property into your primary source of income, a rural home loan might be just right.
What is a hobby farm?
When we are talking about rural property, it's important to make the distinction between a hobby farm and a commercial farm. Hobby farms:
- Are primary residential properties
- Are not used for commercial income purposes or as a speculative investment
- May be used to raise livestock or to grow crops, but this must be for the purposes of recreation or lifestyle, for the enjoyment of the owners only
- Are valued only on the weight of the land and any buildings on it. No machinery, livestock, crops or otherwise rural income-producing assets will be included as with commercial farms.
Compare Land and Rural Home Loans
How much deposit do I need for a rural property?
The deposit you'll need for a rural property will depend on the size of the property.
They can require deposits of as small as 5%, or as much as 30% depending on the size of the property and where it is.
You are typically much more likely to be looked upon favourably if your property is under 10ha. Banks are more hesitant about larger properties, and above 200ha banks are likely to be very conservative in their lending. That being said, rural home loans are designed for these purposes exactly, so educate yourself about which lender offers the best loan contract and be prepared for your application.
Of course, if you have a larger deposit you are able to borrow more to spend on your rural property. If you don’t have 20% of the total cost upfront or you’re not even close, you may still be able to apply for a specialised rural home loan that leaves you with some options. Because it’s generally considered to be a riskier area from a lender’s point of view, any equity you can provide (such as from a family home) as well as your deposit and proof of repayment potential will help in securing your rural home loan.
How do you compare rural home loans?
- Maximum loan amount. Do your research and find out how much you can borrow and from who. Not all banks and lenders will offer the same loan amounts. As a general rule, the higher your deposit, the more you will be entitled to borrow.
- Maximum Loan to Value Ratio (LVR). LVR is the amount of money you are borrowing balanced against the value of the property. Banks and lenders will have different policies about LVR and it pays to shop around to see who is offering the best deal.
- Offset account. Making use of an offset account with low fees and great features can be a huge helping hand when you are paying off a home loan. It could potentially save you thousands of dollars over the life of your loan.
- Repayment flexibility and loan options. As is the case with all home loans, finding a lender and a contract that suit your specific needs is of paramount importance. Check features such as the ability to make extra payments without incurring extra charges, the flexibility to choose the frequency of your repayments and whether you are able to make interest-only payments for a certain period.
- Redraw facilities. Check the applicable redraw facilities and any fees. Being able to redraw from your home loan can take the pressure off during the tighter months and help you stay relaxed and on track.
Some key points to consider before packing the kids and moving to the country
One reason why banks and lenders are typically more hesitant to lend for rural property sales is that they are riskier. If it’s your dream to live on the land then resources are available, but before you make the leap there are some factors that need to be taken into consideration.
Rural and farm home loans generally require large amounts to be borrowed, which means higher repayments and a longer loan term. Get good advice and don’t rush your decision - it’s worth the extra time taken. Also consider that if you are planning on using your home to generate a secondary income, if you default on your loan you risk losing your home and your business.
Remember that you may incur extra charges from the bank or lender you are borrowing from, such as higher rates on compulsory valuation.
What do lenders look at when you apply for a rural home loan?
Each lender will have their own set of criteria they use to assess whether they will offer a home loan for the purpose of purchasing a rural property; however, some of the main items that may be considered are:
- Land size: There isn't any real maximum land size that lenders will not allow for a rural home loan, but land that is upwards of 100 hectares may not be considered a hobby farm for the purposes of lending. The lender may request you apply for a commercial loan.
- Location: Some lenders have postcode restrictions in place for rural home loans. This means if the property you are looking at purchasing is outside of the lender's approved postcodes, you may need to reconsider the property or look at another lender.
- Property Access: The property must be easily accessible for different reasons. A dirt road is appropriate and often common with rural properties, but it must be well maintained so that any vehicle that needs to can access the property.
- Public Services: The property must have access to public services such as electricity, water and sewage, if you opt to have your property completely self-sustaining it may also be useful to have all the regular services accessible at the property just to make the process of lending easier.
- Area Zoning: In order to be classified as a hobby farm rather than a commercial farm the land will need to be zoned as rural, rural residential or the equivalent depending on the state it is in. If it is zoned as industrial, commercial or for farm use this may impede your ability to get a rural home loan as it may be a commercial farm. The best way to confirm if the property is considered a commercial or hobby farm is to enquire if you will be required to pay GST on the purchase of the property as this only applies to commercial farms.
- Land Use: The land should be used for personal or investment purposes only, not as a fully functioning farm. Some hobby farms with minor farm improvements and no income from farm production can also sometimes be accepted by certain lenders.
How to apply for a rural home loan
If you have made the decision to take out a rural home loan to buy a home outside of the city, doing your research to find the best conditions, terms and borrowing rates is well worth the effort. For specific loans such as rural loans, you are likely to find big differences in the kind of offers available.
It’s advisable to speak with a mortgage broker who understands the intricacies of your needs and can help steer you in the right direction, especially if this is your first move from the city and you are more uncertain about the market and extra costs.
First and foremost, plan for the future and research your possibilities. If you are set on a tree change and can feasibly afford to make the move, put the extra time into finding the rural home loan that’s right for you.
Feature image: Shutterstock
We are wanting to buy a house on acreage out of a major town, approximately 30 minutes away, the property is 45 acres and is mainly Forrest, it has a self sustained house built on it, septic, solar and water tanks. It will only be residential and not farmed for money, is this classified as rural.
Hi Kathleen,
Thank you for your question and for contacting finder.com.au we are a financial comparison website and general information service we are not mortgage specialists so can only offer general advice.
Basically, lenders have postcode restrictions in place for rural home loans, so if the property you are looking at purchasing is outside of the lender’s approved postcodes, you may need to reconsider the property or look at another lender. It’s best to check with the lender (you want to apply for the rural home loan with) if the property you’ve chosen is under their approved postcodes.
Alternatively, you may also speak with a mortgage broker who will take all your circumstances into account and offer you a range of lending options.
Cheers,
May
Can you tell me if it is possible to reverse mortgage a property which is more than 150 acres? Mine is twice that and I have not been able to find anyone who will?
Hi Mary,
Thanks for reaching out.
Your ability to qualify for a reverse mortgage for a rural property will depend on a range of factors including the property value, property location and your proximity to retirement age. As a result, applications for a reverse mortgage for a large rural property are treated on a case-by-case basis and are subject to the lender’s individual circumstances.
You can compare reverse mortgages and learn more about how they work on this page but you should speak to a licensed mortgage broker to discuss your options as they can draw upon their panel of lenders to find one that’s more likely to review your reverse mortgage application. A broker may have relationships with specialist lenders who may have more lenient lending criteria.
All the best,
Belinda
Hi, my name is Santiago, originally from Argentina and hold an Australian passport. I want to invest in a rural property in Spain and start a boutique hotel. Both my partner and myself are employed here in Australia and we own several properties in Argentina/USA – my question is can I borrow money from an Australian bank to invest in a rural property overseas?
Hi Santiago,
Thanks for your question.
Generally you can, but the land will need to meet a criteria as set out by the lender.
If you find that none of these loans are suitable for your situation, there is always the option of speaking to a home loan broker. They’ll be able to help you further should need further help in narrowing down a suitable home loan option.
Cheers,
Shirley
We have a 2200 acre property (non hobby farmers) this rural loan is through one of the major lenders and our house in town (which we own)is mortgaged to this Loan. We are wanting to build/ or move a house on our property but our bank will only lend us so much. Who is the best bank to talk to about obtaining a loan for our house.
Hi Deb,
Thanks for your question.
Please note that finder.com.au is an online comparison service and is not in a position to recommend specific products, providers and services. If you’d like, you may want to use our borrowing power calculator to see where you stand in terms of how much you can borrower.
If you would like to discuss your eligibility or options, please get in touch with a lender featured on this page. If you find that none of these loans are suitable for your situation, there is always the option of speaking to a home loan broker. They’ll be able to help you further should need further help in narrowing down a suitable home loan option.
Cheers,
Shirley
hi. i have found a rural property of 1500ac (607ha approx). i was wondering what sort of loan i would need to apply for and just how much deposit i would need ? this will be my first time in the realestate market so its all new to us. i would not be using the property for a primary source of income. i am employed full time. however i would pursue some sort of income/profit from the farm in the way of livestock and or lease in the future. any info would be appreciated. regards, daniel
Hi Daniel,
Thanks for your question.
A rural home loan could be suitable for your situation. Your deposit depends on the loan your apply for, for example, some allow a 10% deposit and some will need a 20% deposit.
Since this is your first home loan, I’d recommend that you get in touch with a mortgage broker. They’re home loan experts who can help you find the right loan for your situation and can explain any processes, fees or charges that may apply.
All the best,
Shirley
I am wanting to refinance my 150 acre rural zoned lifestyle block. What is my best option? Currently with CBA but they are not willing to give me a normal mortgage on this property. I am getting charged business rates and the loan is interest only.
Hi Dan,
Thanks for your question. Unfortunately we are not able to recommend the best loan or option for you.
Please compare rural home loans on this page – remember to read the terms and conditions to determine if a product is right for you.
Cheers,
Shirley
Hi
We currently have a small property that we run a small business from (horses). Have been operating for 15 years and make a profit (again small!). We have a loan of $175k and property value of $600k.
We want to purchase a block of land (380 acres) for $400k to run livestock and grow hay etc.
What is the best way to go about this
1) deposit, is it required?
2) can we use equity on smaller place?
3) can we just increase loan on smaller place to take advantage of lower interest rates?
4) how can we make it most tax effective? Will still be a business.
Cheers
Hi Angela,
Thanks for your question.
It is likely that you’ll need a deposit for this loan, especially if you don’t want to pay Lenders Mortgage Insurance. Depending on the nature of the loan you opt for, you may be able to use your existing equity.
Unfortunately we cannot comment on tax implications or strategy – please speak to a mortgage broker about this.
Cheers,
Shirley