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 tranquility, 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.
A home loan for a rural property can be used for both business and personal purposes, but they can be a little difficult to gain approval for.
This is because they are generally considered higher risk than more 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. A city-based property would be far easier and quicker to sell the property and settle your debt.
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.
Hobby farm versus commercial 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
- Primarily residential properties.
- Not used for commercial income purposes or as a speculative investment.
- Sometimes used to raise livestock or to grow crops, but only for the purposes of recreation or lifestyle (for the enjoyment of the owners only), not for commercial gain.
- Valued only on the weight of the land and any buildings on it.
Commercial Farms
- Considered first and foremost to be an income-producing asset.
- Used to produce a commercial income.
- Valued based on the total assets at the property, including machinery, livestock, crops and otherwise rural income-producing assets that can be included in the valuation.
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.
Lenders may allow you to borrow with a deposit as small as 5-10%, or as much as 30%, depending on the size and location of the property.
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. 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.
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. Aside from land size and how you will use the land, many lenders consider:
- Land size. 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. Your application is more likely to succeed if your property is under 10 hectares. The larger your rural property, the less likely you are to be approved.
- 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 which 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.
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, start by doing your research to find the best conditions, terms and borrowing rates.
It’s advisable to speak with a mortgage broker who understands your needs and can help steer you in the right direction.
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.
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.
- Australian Lending Centre. This specialist lender can help with rural loans.
- Redilend. This bad credit lender also works with rural properties and hobby farms.
- Building Loans Australia. This brokerage is focused on land purchases.
Compare land home loans
This table displays information about land loans from various lenders. Some of these loans may not be available to purchase a hobby farm or acreage or larger piece of land. If the green button beside a product is labelled "Enquire now" it means you will be taken to a page where you can connect with a mortgage broker to help you find a suitable loan.
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I’m interested in getting a loan of about 55k for a property on a crown perpetual lease. I’m mainly interested in this place as a family weekender.
What are the loan types available and what sort of deposit will I be looking at?
Thanks.
Hi Greg,
Thanks for getting in touch! The information above shows the type of loan you can get to lease a property and you can choose from the lenders listed above. Your deposit depends on the loan you apply for, for example, some allow a 10% deposit, and some will need a 20% deposit.
To explore more options, 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.
Hope this helps!
Best,
Nikki
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!
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 the criteria 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 will be able to help you further 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.
You may want to use our borrowing power calculator to see where you stand in terms of how much you can borrow. You can also see a list of specialist rural and agricultural lenders that will be able to assist you.
I also recommend getting in touch with a licensed mortgage broker. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that is more inclined to review your application.
Cheers,
Shirley