Rural land home loans

Dreaming about clean air, peaceful mornings and night skies blanketed in stars? Whether you want to raise your kids in the great outdoors, enjoy your retirement in tranquillity, or you're just frustrated with the hustle and bustle of city life, you might be considering moving somewhere more rural.

But in order to do that, you may need to look at specialised rural home loans.

How do rural home loans work?

A rural home loan is used when you want to buy a rural property, also called a hobby farm. This is different to the loan you would need if you wanted to buy a commercial farm. For that you would need a commercial loan.

Like any other home loan, you borrow the money to buy the property and then repay the loan in instalments.

A home loan for a rural property can be used for both business and personal purposes.

They can be a little difficult to gain approval for, though. This is because they're generally considered higher risk than suburban homes. It's harder for a bank to resell a rural property in the event that you can't pay your mortgage and it needs to recoup the costs.

It is possible to get a loan though, so don't despair. If you are looking at a hobby farm or a residential rural property and you don't plan to turn your new property into your primary source of income, a rural home loan might be just right.

How much deposit do I need for a rural property?

The deposit you'll need for a rural property will depend on the size and location of the property.

Lenders may allow you to borrow with a deposit as small as 5-10%, but you need to offer as much as 30%.

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.

For land up to 50 hectares you may need up to a 10% deposit. But 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.

What do lenders look at when you apply for a rural home loan?

Each lender will have its own set of criteria it uses to assess whether it will offer a home loan for the purpose of purchasing a rural property.

But lenders will likely consider:

• Land size. The smaller the land, the more likely you are to be approved. This is because larger lots are often used for commercial farming purposes, which requires a commercial home loan.
• Location. Some lenders have postcode restrictions in place for rural home loans. If the property you want to buy is outside 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. Even if you opt to have your property completely self-sustaining it may be useful to have all the regular services accessible at the property just to make the lending process 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 which state it's in. If it's zoned as industrial, commercial or for farm use this may impede your ability to get a rural home loan.

Our expert says: What to do before you apply

"When you're applying for a rural home loan it's important to do your due diligence ahead of submitting the actual application.

Research loan options so you're aware of the best rates and terms.

Speak to a mortgage broker about your circumstances. They know which lenders have strong appetites for different loan types.

You can also call lenders yourself to ask them about their eligibility criteria for rural home loans."

Rebecca Pike

Editor, Money

How to apply for a rural home loan

When it comes to the application, your chosen lender will make it clear how you can apply. Most loans can now be done online, but you might find that for more complex loans you'll apply over the phone or through a representative that comes to the house.

Alongside the usual documentation like your identification, bank statements and income information, you may also need to provide additional information about the property.

As part of the application process the lender will value your desired property to ensure they're willing to lend for it. Although standard home loans may not require a physical valuation, rural home loans might.

Specialist rural and agricultural lenders

Here are some companies in Australia that may be able to help you with specialist finance for different types of acreage and rural property purchases:

• Aglend. Aglend is an agricultural mortgage broker. It finds finance solutions for farmers and agricultural businesses. This includes rural land loans.
• La Trobe Financial. This lender can help with rural-residential loans.
• Redilend. A credit lender which offers home loans, including rural home loans.
• Building Loans Australia. This brokerage is focused on land purchases.

Frequently asked questions about rural home loans

• How much will a bank lend for a rural property?

  Lenders offering residential rural home loans can lend as much as other home loans, but you'll find the LVR might change.

  You may be asked to fork out more of a deposit. This often depends on the size of the land though. For land up to 10 hectares, you can usually still borrow up to 95% of the value. Anything larger will require more of a deposit, particularly if it's further away from a large town. You'll need to check the criteria lender-by-lender.

• Are interest rates higher for a rural home loan?

  The interest rates offered for rural home loans will differ between lenders based on their risk-appetite for these loans as well as the size of the property.

  Some lenders offer rural home loans at the same rate as their standard home loans. Others may charge a higher rate.

  For smaller rural properties it's more likely you'll get an interest rate similar to a standard home loan.

Written by

Richard Whitten

Senior Money Editor

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Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

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Sarah is the author of How to Raise Rich Kids. With over 20 years of experience in property, finance and investment journalism, she is a trusted expert whose insights regularly appear across television, radio and print media, including Sunrise, Channel 7 News, Bloomberg and Yahoo! Finance. She has previously served as managing editor for Your Investment Property and Australian Broker. Her expert advice has been shared in the media over 4,000 times. Sarah holds a Bachelor’s degree in Communications and a Tier 1 Generic Knowledge certification, which complies with ASIC standards. See full bio

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