Farm loans may be a residential mortgage or where farming operations, stock and assets are included in the sale, a commercial mortgage would apply. This can be a very popular query with farming property buyers. Will their mortgage be a standard owner-occupier mortgage or do they need to take on commercial financing?
The answer lays is in what is included in the property sale and how the property is going to be utilised. Rural and farming properties can take many forms. A farmhouse with some acreage, an ongoing commercial farming operation, or a combination of a home and a level of farming operations. This explainer should clarify the type of mortgage you will require for your rural property purchase.
Residential Farm Loans
Farming and rural properties which are purchased as the primary residence and do not derive income would be financed with a standard home mortgage. The property may include outbuildings and paddocks which are used only for personal livestock and growing activities. Owners may have their own horses on the property or goats, sheep and poultry essential as pets.
Typically, this would be a principal and interest loan, with a fixed or variable interest rate. The land and built structures would be covered under the same mortgage. The same lender assessment of the application, including the LVR, deposit requirements, and credit profile checks, apply to setting the interest rate and borrowing capacity. LMI would apply to low deposit farm loans.
If livestock is included in the sale, they may require a separate loan. While the land and house can be valued and the lifecycle a known factor, livestock may be difficult to value for inclusion in the loan. We offer a selection of personal loans which may be used to purchase livestock to be kept as pets.
Use our Borrowing Power Calculator to obtain an estimate of what you may be approved to borrow to use as a guide for planning.
Commercial Farm Loans
Where a farming property purchase includes an ongoing commercial operation, a combination of loans may be required to fund all inclusions in the transaction. If a residence forms part of the purchase, it may be financed with an owner-occupier mortgage, with the standard assessment, rates and terms applicable.
The commercial aspect of the purchase may also require separate loans. Built structures, barns and land used as a business operation may be funded with a commercial or business mortgage. These types of loans are assessed differently from owner-occupier mortgages. The value of the land and structures is assessed, and the potential of the business may also be considered when lenders make a loan offer.
Different loans are typically required for the plant, machinery and equipment which is included with the sale. Where processing facilities are housed in a built structure, the building may form part of the commercial mortgage and the plant funded with asset finance.
Asset finance facilities – Lease, Chattel Mortgage, CHP and Rent-to-Own can be used to fund these purchases. Used equipment rates and loan conditions would apply. Where possible, we work with lenders to secure a loan that covers all the assets in the one package for convenience and streamlined payments.
Livestock purchases are financed with either breeder or trade Loans, depending on the purpose of the stock. Stock loans may be with Secured Business Loans or Unsecured Business Loans, depending on individual applications and requirements. When additional stock is required to be purchased, a line of credit or overdraft may suit.
Where business goodwill is included in a commercial farming operation sale, that may also require a separate lending product. Secured or Unsecured Business Loans may suit.
Commercial property transactions can be complex, but our expert brokers work to simplify the process and achieve the most workable, affordable finance solution.
Second Property and Investment Farm Loans
Where a farming property is purchased as an investment and the buyer is not residing on the property, investment property finance would apply. The same guidelines may also apply where a farm is purchased as a hobby farm, retreat or second residence. Lenders may treat the purchase as an investment with the relevant investment property mortgage applicable or a standard home mortgage may apply.
Applying for Farm Loans
In preparation to apply for a farming or rural property loan, buyers can connect with a Yes broker to discuss their options. Provide us with an indication of the type of property you are considering, and we can quickly advise what loan will be required for the purchase.
Our range of online calculators are extremely useful in the preparation stages and to assist in selecting a property at a price that suits your borrowing power. Stamp Duty will apply to both residential and commercial property transactions.
To apply for a farm loan, speak with our brokers and we will assist through stages. Conditional pre-approval can be highly advisable, especially if purchasing property at auction.
For individually sourced and structure farm loans to suit both residential and commercial properties, connect with Yes Home Loans brokers on 1800 000 937.
DISCLAIMER: THE INTENTION OF THIS ARTICLE IS TO PROVIDE INFORMATION OF A GENERAL NATURE ONLY. THE ARTICLE IS NOT PROVIDED WITH THE INTENTION OF BEING THE ONLY SOURCE OF INFORMATION ON WHICH PROPERTY BUYERS SHOULD MAKE THEIR DECISIONS. BUYERS WHO NEED GUIDANCE AND ADVICE ON PROPERTY LOANS BASED ON THEIR INDIVIDUAL CIRCUMSTANCES ARE ADVISED TO CONSULT WITH A SPECIALIST MORTGAGE BROKER OR FINANCIAL CONSULTANT. NO LIABILITY IS ACCEPTED FOR MISREPRESENTATION OF FOR ANY ERRORS IN DATA, POLICIES AND SPECIFIC DETAILS THAT HAVE BEEN OBTAINED FROM OTHER SOURCES.