Acreage financing

Are you interested in an acreage property? These tips can help you understand the specific lending requirements for an acreage.

Down Payment

The minimum down payment requirements are: 5% on the first $500,000 and 10% on the amount over $500,000 up to $1M. For example, a $750,000 acreage requires a minimum down payment of $50,000 (5% of the first $500,000) and an additional $25,000 (10% of the remaining $250,000), resulting in a total down payment of $75,000. For purchase prices over $1M a minimum down payment of 20% is required. Additionally, more down payment may be required the higher the purchase price. The location of the property is another factor that determines the down payment requirement. The further away the property is from a major city the more likely it is that the lender will require a higher down payment.

Size and Zoning

Many lenders will finance acreage properties with up to 10 acres of land; however, mortgage approvals can become more elusive if a property is larger than 10 acres. We do still have viable options for purchases up to 160 acres; however, the lenders are far more limited. When bare land or an acreage is zoned as agricultural (farming designation) this can also limit the banks and lenders that will finance the land.

Farming, Animals & Hobby Farms

The distinction between what constitutes an acreage property versus a farm can be blurry. The land zoning and intended use of the property is important, as any farming activities resulting in income are not permitted with residential lending. If you are looking at a hobby farm, you must tread carefully as to not cross the line of becoming an active business.

Value & Outbuildings

A typical residential mortgage will include the value of the house, the land, and anything on the land. However, when purchasing an acreage, lenders typically only consider value of 10 acres plus the home and one garage. If there is an additional outbuilding, shop or excess land over 10 acres that adds value to the sale price, might not be included in the mortgage financing and the buyer might bear the expense. That said, we do have access to a few lenders who will consider up to 160 acres of land plus one outbuilding in the value. This is why it is so important to be dealing with the right team, so that your file can be directed to the appropriate lender.

Typical Acreage Conditions

When writing an offer on a new acreage purchase, there are inclusions that the buyer should consider for conditions. Outside of mortgage financing, a home inspection and an RPR requirement, we typically always recommend a well and septic test/report. These are added costs but important to you as the buyer and also to the banks to ensure that there is proper potability/sewage in place. If an older report has been completed by the current owners that you would like to use, or if you are waiving these requirements, some banks will allow you to purchase ‘title insurance’ in lieu of these conditions. Always speak to your broker and real estate agents about these conditions prior to placing your offer.