One way to achieve this dream is to purchase a hobby farm, and it allows you to enjoy the peace of the countryside and even raise a crop or a few cattle. It can be challenging to get a hobby farm home loan, though, because, in addition to negotiating for the preferred loan terms, you will need to convince the lender you are not planning on farming commercially. Your best bet for a home loan in Melbourne might be to find a lender specializing in rural property loans.
What are home loans on a hobby farm?
A hobby farm may be just right for you if you want to try rural life without actually becoming a farmer. You can buy a few land areas, build a residence, and take on some farming or animal husbandry as a recreation, depending on your budget.
While all of this may sound simple and restful, it can be quite tricky to find hobby farm loans. For example, without being deemed a commercial borrower, your rural property’s size is critical to the amount of money you can borrow.
Many lenders do not accept land more significant than 100 hectares as a hobby farm and may ask you to apply for a commercial farm loan. And for farms, less than 100 hectares in size, the deposit that you have to position rises with the land area.
Note that to show how much you will borrow, lenders use the term loan-to-value ratio (LVR), meaning the rate of the amount of the home loan to the value of your farm. Based on the size of the hobby farm, you might be able to borrow a particular LVR.
If you can find someone to guarantee the loan, some lenders can give you a 100 percent LVR hobby farm home loan. Before any such loan is accepted, you will, however, need to check several boxes. Note that you need to save a higher percentage of the farm’s valuation to pay the deposit on the hobby farm home loan if you are looking to purchase a big hobby farm.
Stuff to remember while applying for the home loan on a hobby farm
If you’re planning to farm for profit or use money received from the farm to pay back the loan, you probably will not qualify for a hobby farm home loan in Melbourne. Again, only the rural land value and any fixed buildings previously built on it can finance the loan.
A home loan for a hobby farm would not cover farm machinery, pets, or agricultural equipment and goods.
Hobby farm home loan lenders can also only accept loans for rural properties that meet certain conditions, including:
- Criteria for location and zoning: Many lenders can only provide refinance home loan to hobby farms located in certain postcodes and zones. Zoning can vary from state to state, but the land must typically be categorized as either rural, residential, rural, or versatile. The use of the land, as the words indicate, matters as much as its size.
- Accessibility: You might think of your rural home, mostly cut off from the rest of the world, as a refuge. But some necessary access infrastructure, such as dirt roads and utility connections for electricity, water, and sewage, will be needed by lenders.
You will also need to consult with lenders about the kind of improvements or refinance home loan on the farm that you can make.
How do I request a home loan for a hobby farm?
You may want to confirm the zoning, land use, and planned developments in the area you plan to buy a hobby farm before you begin meeting lenders or putting together a home loan application. You may be able to get this information, along with suggestions on the lenders you can approach, from the local council office.
Getting this knowledge will help you validate your rural property option and ease your discussion with lenders. You should know your land plans reasonably well, too – are you planning to raise livestock or plant a crop or two?
Based on your hobby farm’s size and the intended use, you’ll then need to find a lender like Accounts NextGen providing an acceptable home loan in Melbourne, Australia.
If your study does not help you locate the best lender, you should reach out to a mortgage broker. The expertise of a broker will save you time and effort and speed up applying. Before finalizing the terms of your home loan, you should note that some lenders may insist on evaluating your hobby farm, in addition to checking your revenue and credit score.
If you cannot put down the appropriate deposit, you will need to negotiate the deposit or find a guarantor.