In B.C. and Western Canada, purchasing land in rural areas can come with a lot more caveats than buying a residential home near a city, or even a typical, commercial property. When land purchases are meant for agriculture, even if a residential building is on the land, mortgage lending criteria changes a lot.
The typical rules of commercial lending may not apply for agricultural businesses, even though they fall under the ‘umbrella’ of commercial mortgages. In some cases, aspects of residential mortgages can apply when buying acres of raw land. This can make life easier for the purchaser, if they qualify.
Contacting an agricultural mortgage broker is wise when seeking to purchase land. Even if you’re seeking a residential acreage or bare land mortgage, working with someone who is well-versed in these types of properties can mean saving thousands of dollars.
We encourage you to get in touch with our team of B.C. land mortgage brokers. We have commercial lending specialists in Vancouver who can provide you with information you need to know when buying acres of land.
Email: firstname.lastname@example.org (our head mortgage broker in Richmond, B.C.)
For general guidance on what to expect when contacting a land mortgage broker, we’ll provide answers below to some common questions about agricultural and acreage mortgages in Western Canada.
What can B.C. agricultural mortgages be used for?
When we say “agricultural mortgages,” in B.C. at least, that doesn’t just mean farm mortgages to buy and start new farms. Agricultural mortgages also apply to your scenario if you are seeking to:
- Run a nursery or garden centre
- Operate a greenhouse
- Store or handle grain or other types of food
- Lease out land for pasture, or to raise livestock
- Host an equestrian facility
- Invest in farming equipment
- Improve land by tilling or adding inputs to the soil
- Increase the value of land by building or renovating farm structures (including a house on the farm). This includes environmental improvements, such as switching to renewable energy sources.
- Access equity in your land
- Turn land into a wind or energy farm
To achieve the above, a land mortgage broker can help you:
- Borrow anew
- Consolidate debt
- Access equity in other collateral
However, keep in mind that agricultural mortgages are only used when any (not all) of the following conditions apply:
- The land is larger than 10 acres.
- The land is used as a primary source of income.
- The land is zoned for agri-business or commercial farming use.
If your case doesn’t fall into any of the above scenarios, you may qualify for acreage or other land mortgages. See below for more information.
How much cash do I need to get an agricultural land mortgage?
Most of the time, you will need at least 25% as a down payment, if not more, to secure a commercial, agricultural mortgage in B.C.Read more important details
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?
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.
What is an acreage mortgage used for in B.C.?
An acreage mortgage is used when:
- Buying rural, mostly-bare land of 10 acres or less (it can have a house and some structures on it, but it can’t be 10 acres of townhouses, of course).
- The primary goal is not to earn a living from the land (you have another source of income).
- The property will be used as a residence.
- The land is zoned as “county residential” (i.e. commercial farming is not allowed).
These situations are a lot easier to obtain mortgages for. The reason is due to laws around default mortgage payments.Read more
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.
How much cash do I need to get an acreage mortgage in B.C.?
When it comes to buying acreages, down payments and cash flow requirements are very dependent on your particular needs. For example:Read more
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.
Secure your agricultural or bare land mortgage the easy way: by working with a B.C. mortgage broker
Our Richmond mortgage broker and his team will work in your interest – not for the favour of any one bank or lender. We’ll hunt down a financing plan that is best for you, and how you want to use your land.
Owning a farm or acreage is a major investment, and it can be a risky one, too. It requires expertise on the types of mortgages that can be used to lower your land costs in the long run.
Don’t try to do it alone; contact our team for help today!
Email: email@example.com (our head mortgage broker in Richmond, B.C.)