Acreage mortgage financing options can vary substantially by region. We have included the general lender offerings along with some regional specialties below. Even when we discuss general lending guidelines, they also vary quite a bit from lender to lender.
Over the years we have had the pleasure to work with many clients who have approached their bank about purchasing a new acreage only to find out that their bank typically doesn’t love financing acreages and will put up various road blocks along the way to try and either reduce their approval amount or not approve their mortgage at all.
The general Acreage Mortgage guidelines:
*Banks will typically finance your new acreage home, plus a detached garage and between 5 acres and 10 acres.
*Banks will typically not finance acreages that have agricultural zoning and activity
*Banks will not finance your outbuildings such as shops, large sheds, and extra garages or barns
*If you are purchasing a 2-5 acre home that is zoned country residential, your mortgage approval should be fairly easy and we will ensure that you receive excellent rates and terms.
The two biggest challenges for Acreage Mortgages are:
The bank will only finance the value of your home plus five to ten acres of land:
Lets look at an example to illustrate how this can become a potential challenge is you are purchasing a home with 30 acres and have 20% down payment. If we assume your home value is $300 000 and your per acre value is $10 000, this would yield a $600 000 purchase price. In the case of a lender who will only lend on a home plus 5 acres, they will use a $350 000 value ($300 000 house plus 5 acres at $10 000/ acres = $350 000) and lend on 80% of that. This would result in a dramatic increase in your down payment required. In the above example if you have budgeted 20% down payment for your $600 000 purchase, you were planning on a down payment of $120 000. Unfortunately this down payment requirement almost triples up to $320 000 with a house plus 5 acre lending policy.
The bank will only finance your home if it is zoned country residential and will not consider an acreage that has an agricultural zoning:
It is true that most lenders will not lend on farm land that is actively being farmed. The reason for this dates back to the foreclosure laws that were enacted during the depression and extend some significant protections to farmers and are not favourable to mortgage lenders. If you have an active farm that you would like to finance, your best first option is typically Farm Credit Canada or your provincial equivalent. If you have an acreage that you do not actively farm but your zoning is agricultural and you have 30 to 160 acres, often it can be quite challenging to have most of the major lenders lend on your home due to their fear of potential farming operations.
We have Acreage mortgage solutions:
Our first solution solves the house plus 5 or 10 acre valuation issue:
We have lenders that will consider valuing your acreage based upon your home plus up to 160 acres. The loan to value can be up to 80% however this is subject to an internal sliding loan to value scale based upon your proximity to the nearest town or urban centre. More specifically, the closer we are to a major centre the closer to 80% loan to value we will often receive.
Our second solution solves our agricultural zoning issue:
Depending upon your region, we are able to approve your mortgage with an agricultural zoning with the following conditions:
*We are able to use your home plus a detached garage in your valuation, as with almost all lenders additional outbuildings are not considered in the valuation.
*We can lend on up to 160 acres of value provided you do not have an active commercial farming operation
*When we complete the appraisal if the number and type of outbuildings indicate commercial farming activity unfortunately we will not be able to lend.
*If you are financing your acreage and you have 20, 30, 100 acres of land that is not being commercially farmed then we can have great lending options for you.
We work closely with many acreage and rural clients. This is definitely a unique lending speciality and can also be regional in nature. It is important that you work with a mortgage professional with the proper expertise to ensure you receive the best mortgage to fit your goals. Please feel free to contact us via phone, online application, or contact form and we would be happy to discuss your mortgage options with you.