If your dream life is away from all the city noise and you are trying to figure out how to make your dream a reality, a rural home loan might be the thing for you.
Raising a family or spending your retirement in a smaller and safer environment with clean air and peaceful nights is a good reason for you to investigate these specialised loans. Rural home loans are there to help you buy a rural property for personal (also known as a home loan) or business use (also known as a commercial loan).
A loan for business or personal use
Depending on your plans, you can ask for a rural property loan for business or personal use. With Australia’s history of droughts and the unstable rural property market banks and lenders tend to act more conservative with loan applications for properties that are listed as your primary source of income (Agribusiness). If you are looking to get a loan for a hobby farm or residential rural property, your chances are much better.
Deposit for a rural property
The amount you will need to deposit will depend on the size and location of the property. It can fluctuate between 5% up to 30 %.
Banks tend to be very conservative in their lending with larger properties under Home Loan lending, but are more flexible under Commercial Lending.
You will be able to borrow a larger sum if you can provide a larger deposit. But if you are not able to deposit the usual 20% of the total cost you may still be able to successfully apply for a rural home loan. Any equity in another property you can provide, or in some cases, proof of strong income or repayment potential will help you in securing your loan.
Comparing rural home loans
Maximum loan amount
Depends on the lender because not all of them will offer the same amount. Also, 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.
Repayment flexibility and loan options
You should compare 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 can 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 help you stay relaxed and on track.
Lenders criteria
Each lender will have their own set of rules and criteria for assessing your loan application. Some of the main items to consider are:
Land size
There isn’t a cap on the land size but land upwards of 100 acres may still qualify as a hobby farm, but the lender may request you apply for a commercial loan.
Location
There are lenders with postcode restrictions in place for rural home loans. AgLend Finance will look for lenders that approve loans in your postcode.
Property Access
The property must be easily accessible. A dirt road is appropriate with rural properties, but it must be well maintained, under a commercial loan, this is less of a requirement.
Public Services
The property must have access to public services such as electricity, water, and sewage. Area Zoning, under a commercial loan, this is less of a requirement.
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 located. Check 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 (Agribusiness).
If rural home loan is a right fit for you
If you have decided to take out a rural home loan, do your research to find the best conditions, terms and borrowing rates. For specific loans such as rural loans, you are likely to find big differences in the kind of offers available.
You can make it easier to get the best rates available for your rural property loan by contacting Aglend. It’s always best to have financing arranged first, so please don’t hesitate to call Aglend, we are here to help.
