Home loan for a hobby farm

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marty
Posts: 14
Joined: Mon Mar 16, 2015 6:46 pm

Home loan for a hobby farm

Post by marty »

Hey there experts,

I’m looking to take out a loan on a hobby farm. I’ve always wanted to own a hobby farm but always had my home loan repayments to worry about. I finally paid off my mortgage last month.

As soon as I paid it off, I started looking for a hobby farm property. I found one last week which is valued at $500,000.

I wanted to know how much I can borrow. Please help me out!

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Otto Dargan
Mortgage Specialist
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Home loan for a hobby farm

Post by Otto Dargan »

Hi and welcome to the forums marty.

As you have already faced this, many lenders don’t give out hobby farm loans readily, especially for properties that are over 25 acres or 10 ha (hectares) in size.

However, there are lenders who do lend and may allow you to borrow up to:
  • 95% LVR, for a land size of up to 10 ha.
  • 95% LVR, for a land size of up to 50 ha.
  • 80% LVR, for a land size of up to 60 ha.
  • 70% LVR, for a land size of up to 100 ha.
  • 60% LVR, for larger agricultural businesses because of the difficulty in financing them.
You may also find competitive professional packages and basic loan discounts for blocks no more than 60 ha in size.

It is important to note that even the lenders that do lend for hobby farms will be assessing your property before lending you any money. Some of the things that lenders will look at while assessing your loan application are:
  • Land size: The land size should be at least 10 hectares to be considered for a home loan. Lenders will be stricter for a farm size over 200 hectares.
  • Location: Farms located in remote areas are more difficult to finance. Restrictions can also be placed on home loan according to the postcode of your property however some of our lenders do not have these restrictions.
  • Access: The property must have access to good roads however dirt roads are allowed as long as they are maintained properly.
  • Services: The property needs to have access to electricity however water and sewer services may not be required.
  • Zoning: A hobby farm can be zoned as both rural and residential property (and / or the equivalent according to your state). If the land is zoned as industrial, commercial or for farm use it may not be acceptable for a home loan and you will have to apply for a commercial loan.
  • Land use: The property must only be used for personal or investment purpose which means you cannot use it to generate income other than by renting.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

marty
Posts: 14
Joined: Mon Mar 16, 2015 6:46 pm

Re: Home loan for a hobby farm

Post by marty »

Thanks for the information but I didn’t get what you meant when you mentioned postcode restrictions. Can you please clear that up for me?

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Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Home loan for a hobby farm

Post by Otto Dargan »

Hi marty,

Almost all banks and major lenders in Australia have a location guide or postcode list that determines their maximum loan amount and lending policy for each location in Australia.

This is because smaller towns and remote locations tend to have lower real estate sales.In the event that you want to sell your property, you may have to wait several months or even years to find a buyer. This is particularly true if the local economy is suffering due to a drought or local industry closures.

Because of this, banks view smaller towns and remote areas as a higher risk and restrict the amount you can borrow.

However, not all lenders have postcode restrictions and will consider any location in Australia. In some states lenders may limit your loan amount because of the comments made by their valuer.

Locations are put into categories based on their population, real estate values, local economy and likely future of the area.
  • Category 1: Metro areas, capital cities in each state & major regional centres with a large population. Generally considered to be low risk.
  • Category 2: Medium sized regional centres. Considered to be low to medium risk.
  • Category 3: Smaller towns with fluctuating property markets. Considered to be medium to high risk.
  • No Category / National Locations: All other postcodes that are not included in the above categories and considered to be a very high risk.
  • High Density: Inner city suburbs or areas with high rise residential buildings. High density units in these areas are considered to be very high risk.
If you want to find out if the location of your property is viewed as high risk by the banks, then you can use this Postcode Calculator.

You can check out our website to find out more about hobby farms and how you can buy one. You can also call us on 1300 889 743 or fill in our free assessment form to find out more about how your property will be assessed.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

marty
Posts: 14
Joined: Mon Mar 16, 2015 6:46 pm

Re: Home loan for a hobby farm

Post by marty »

Thanks for making it so clear to me. The property is about 10 ha so I’m hoping it won’t be much of a problem to get a loan.

I’ll give you a call tomorrow to further discuss my situation. Cheers!

stubby
Posts: 9
Joined: Tue Mar 17, 2015 7:43 pm

Re: Home loan for a hobby farm

Post by stubby »

Good afternoon home loan experts,

I live in Scone and I’m planning on buying a hobby farm. My parents own one and they tell me that they're even looking to sell.

I won’t be able to pay all of the money for the purchase so I’m looking for a loan. I learnt quite a bit about hobby farms through this thread. I have one question though.

Will buying a property from my parents benefit me?

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Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Home loan for a hobby farm

Post by Otto Dargan »

Hi stubby,

If you purchase a property from your parents then you may:
  • Be able to make the purchase below market value.
  • Not need to pay Lenders Mortgage Insurance (LMI). Since you may be getting the property below market value, there is a high chance that you may not need to borrow more than 80% and, consequently, avoid paying LMI.
  • Not require a real estate agent. As a result, your parents may be able to save even more money.
  • Be able to avoid a gift tax. If you purchase a property from your parents then you do not have to pay the tax associated with inheriting a property as a gift.
  • Not need a second security. Such a purchase is similar to a guarantor loan because in both cases, the parents are helping their children step into the property market. However, unlike a guarantor loan, your parents do not have to put their house as security for the mortgage if you are planning on purchasing it.
You can go through our website or call us directly for more information.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

stubby
Posts: 9
Joined: Tue Mar 17, 2015 7:43 pm

Re: Home loan for a hobby farm

Post by stubby »

Thanks a lot, Otto! You’ve been a great help to me. I didn’t think I’d understand so much so soon, especially with the help of your website. I’m planning on calling your office as soon as I sort all of this out with my parents.

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