Take advantage of customized, agricultural mortgages and acreage mortgages in B.C.

However – and this is important – when you are looking to farm commercially on an agriculturally-zoned piece of land, most mortgage lenders will only finance up to 10 acres of it.

This 10 acres includes the house and a single garage (if there is one there already). This is the limit by which an appraiser will value the home. Lenders will not look at the value of anything else on the land, even if it is useful to the farm (e.g. barns, out-buildings, grain silos, secondary homes, etc.).

If you want to mortgage more than 10 acres, and there happens to be a lender willing to do it, your down payment can be much higher.

If you plan to build a home on the land, or even bring a manufactured home onto it, other lending rules will apply. For example, you may need a construction draw mortgage.

Also important to note is that default mortgage insurance will not be available for this type of purchase. This means interest rates can be higher.

But wait a minute, what if you want to buy more than 10 acres? Then what? Do farmers just pay cash for all their land?

Not always.

In many cases, people seeking to buy a farm will apply for government-backed loans through the Canadian Agricultural Loans Act (CALA) Program. You can learn more about this program, here. These funds can be used for land, equipment purchases, and more.

One of the lenders under this program is a Crown corporation called Farm Credit Canada (FCC). They should be contacted directly by you, if you wish to use their services.

However, ‘regular’ banks and credit unions can also offer loans under this program. They also need to be contacted directly, since mortgage brokers don’t arrange these types of farm financing deals.

In addition, people who want to sell off land will sometimes agree to arrangements that allow their buyer to pay them over time. These arrangements are legally binding and can include:

• Vendor mortgages – this means the current owner becomes your lender, or your partial lender.
• Option to purchase leases – this allows you to lease the land with the ability to buy it later.

To arrange a vendor mortgage or option to purchase lease, you will need to contact a real estate lawyer. Mortgage brokers do not help with this.

Finally, there are also private lenders and personal loans, if all else fails. Mortgage brokers can help with private loans.

Back to top

You see, if a farmer stops paying their agricultural mortgage (i.e. defaults on their mortgage), a lender must wait an entire year before they can repossess the land and call it a foreclosure.

With acreage mortgages, foreclosure can happen within 3 months. This reduces risk for a lender. They can evict you and sell the land to earn their money back much more easily.

The good news is that, if you want to build a home on an acreage, or set up a small homestead, you can do so on these types of land purchases.

There is a constant, ‘dealbreaker’ rule to this though: the land can not be zoned for agricultural use. Meaning: agri-business is legally not allowed on the land. If it is, the one-year foreclosure rule would apply, thus bringing back risk for the lender.

However, there are other conditions that will determine:

• Whether or not you can get a mortgage for an acreage.
• How much of a mortgage you can get.
• The acreage mortgage terms that will apply.

These are discussed below.

Back to top

If you want to build a home from scratch on your acreage, you will need a construction draw mortgage.

If you want to buy bare land and build a home on it later, you’ll need a bare land mortgage for the time being. You’ll need to transfer to another type of mortgage when you are ready to live on it. There will be fees for the transfer.

If you want to move a mobile or manufactured home on the bare land, whether permanently or temporarily, your financing options will be limited to the rules for this type of home. Since mobile and manufactured homes are often seen as depreciating assets, lenders will treat them differently. However, if they are permanently secured to a foundation, this can work in your favour.

If there are no potable water and septic services on the land, this can make it harder to mortgage. If there are water and septic systems on the land, they will need to be inspected by an appraiser, to ensure they are safe for livability. A water potability certificate will need to go into the mortgage application.

If the property is very isolated, or if road access is limited, this will also make it harder to mortgage (since it will be harder to resell).

If you want to finance renovations on an existing home on the property, you’ll need a renovation mortgage.

If this is to be your vacation or secondary home, you may want to follow some tactical and financial advice, as explained here.

If you plan to rent out the home on the acreage, whether as a vacation rental or a long-term lease, your mortgage conditions can become stricter. Not to mention, city laws and insurance premiums can come into play.

In general, when you are buying an acreage as your primary residence, you could pay as little as 5% down, though that is very rare. Now, this rate would also require mortgage default insurance (which is allowed in this scenario). But, the catch 22 is that default mortgage insurance can’t be used on homes over $1 million. And, most acreages in B.C. cost over $1 million.

Whether or not you can get a low down payment rate on an acreage will depend on the factors above, and more. Most cases will need 35% – 50% as a down payment.

In other aspects,The rules of typical residential mortgages would apply.

The best way to find out what type of land mortgage you can get, and the down payment needed for your case, is to work with a B.C. mortgage broker. Our Richmond mortgage broker can help you through the details, and shop the market to find a plan that suits your needs.

Back to top