It’s the ultimate dream: buying a beautiful home with its own plot of land, giving your family privacy, peace, and clean air to breathe. But what is the price of such a dream? Are there financial deals that can make it a reality?

Acreage living around Sydney is on the rise, with a big uptick in searches for lifestyle properties. Acreage properties give people the chance to live closer to nature, a place with plenty of green space but within commuting distance of the city.

While some things may seem to be too good to be true, and certainly, purchasing this much space comes at some cost, we are here to talk you through the process of lining up your finances to relocate your family to a vast new-build, one which is built to your specifications.

We will consider the types of loans that best fit your finances. We’ll also examine how to obtain that loan, giving you tips on how to get the best deal, along with some special considerations for acreage financing.

Now, let’s explore the different home loan types you can take out to make your dreams come true.

What are the Different Types of Mortgage Options for Acreage Home Builds?

There’s no shortage of loan types available for acreage home builds. But which is right for you? Let’s break each option down one by one.

Traditional Home Loans

A standard home loan, otherwise known as a mortgage, is the most straightforward route to take when buying a new property. Within this are two types of loans: those with fixed rates and variable rate loans.

However, if you plan to build your own dream house upon your acreage, know that a traditional home loan won’t cover any additional costs. If you are looking to do more than some light gardening on your new acreage, a home loan may not be the most financially savvy option available.

Rural and Agricultural Loans

If you take out a specific rural or agricultural loan, you will have more liquidity to start your life on an acreage property. There are many specialist lenders you can turn to for this.

An agribusiness loan will take into account extra expenses, such as the money needed for farm equipment finances and any potential livestock financing required.

If, however, you are purely looking at rural residential properties, this is probably not the loan for you. 

Construction Loans

Taking out a specific loan to cover construction costs is often the best way to go. Construction home loans release funds in a five-step sequence, reflecting the five main stages of the build, in order to reduce the overall interest you have to pay.

If you only take out a construction loan, you must then contact your lender to renegotiate the terms of your loan, which you would need to do anyway if opting for a fixed-term mortgage.

Equity Release

If you want to retain an existing investment property portfolio but need a boost of cash, you could look into releasing equity from another property.

If this is the route you wish to take, you will first want to obtain a quote for the valuation of your current property. With any luck, this will have appreciated since its initial purchase.

But is this the best route for you? Let’s take a look at the pros and cons.

Pros:

Releasing equity is not bad credit. It’s also much quicker than saving money, so if you are looking to start your dream in an Acreage property as soon as possible, this is a great solution.

Another benefit of this approach is that the bank will have something more concrete to hold against the loan than your earnings. So, in leveraging your pre-existing assets, you increase your borrowing power. The bank will also be more likely to give you a loan at a more competitive interest rate.

Cons:

On the other hand, equity is not the most straightforward route into obtaining a loan. It can be easy to overstretch yourself, so it takes a lot of careful calculation to ensure you stay out of the red.

If you do not want to sell your existing property, you may have intentions to rent it out, which will give you an income stream to bear in mind, too.

How to Get a Loan for an Acreage

Here’s our step-by-step guide to getting a loan for acreage in Australia.

1.  Determine Your Budget and Loan Type

Evaluate what’s already in your bank account and consider the shape of your personal finances for the foreseeable future. Use online tools like loan repayment calculators to aid you in this step.

Remember, you will need to consider more than the price of purchase and construction. Factors like stamp duty, home insurance and mortgage insurance can creep up on you. Use all of the information available to decide which of the above types of loans is best for your situation.

2.  Check Your Credit Score

Lenders consider your credit score alongside your financial assets. It’s worth getting the jump on this and taking steps to ensure it is as good as can be.

3.  Save for a Down Payment

The bigger your deposit, the more manageable your rural home loan (and the interest you pay on it) will be. 10%-20% is a good benchmark to aim for.

4.  Choose a Lender

To get the best deal possible, compare home loan rates between multiple companies. Whoever you go with must have an Australian credit licence.

5.  Prepare Your Documentation

There are quite a lot of documents to line up. Collect proof of your identity, finances and income, in addition to all the details about the property you are looking to purchase.

6.  Get Pre-Approved

If your chosen lender is happy with all the documentation, they will pre-approve your mortgage, giving you a 90-day window in which you can make an offer with confidence.

7.  Make an Offer and Complete the Purchase

If you’ve selected a block of land within your budget and you have your loan approval, it is time to make an offer. If all goes well, this will be completed, and you will find yourself an acreage owner!

8.  Close the Loan

This is the final step to obtaining your line of credit. Once you close the loan, you are responsible for the mortgage, and the loan repayment process begins.

Tips for Securing the Best Mortgage Deal

Landing the best mortgage deal is a skill in itself. Here are some tips to consider:

●      Improve Your Credit Score: Are there small steps you could be taking to improve your credit score? Do you have a credit card, and if so, are you making repayments on it swiftly? Do you have many other contracts taken out, say smartphone or car finance deals?

●      Save a Substantial Deposit: The larger your deposit, the smaller the size of the loan you need to take out. Plus, by saving a substantial deposit, you are allowing your mortgage lender to see your financial situation and your inherent responsibility.

●      Shop Around for the Best Rates: Not all mortgage loans are built the same. Compare home loan rates between many different companies, using a mortgage calculator to make sure all the data is tailored to your circumstances.

●      Consider a Mortgage Broker: By employing the services of a mortgage broker or a loan broker, you can save yourself any difficulty in the previous step by obtaining professional advice. Plus, they are likely to have access to deals that are unavailable to the general public. If you’re looking to build an agricultural business, you may wish to speak to commercial brokers, too.

●      Understand the Fine Print: Be aware of all your loan features! Avoid finding yourself blindsided by fees and charges or coming up short and violating those pesky terms and conditions. Make sure that when you get your contract, you go over all the wording with a fine toothcomb before you sign on the dotted line.

The Unique Challenges of Acreage Financing

Acreage financing isn’t without its difficulties. It’s important you understand the challenges and how to avoid them before you begin the process.

Higher Loan-to-Value Ratios (LVRs)

Loan-to-value ratios are calculated by comparing the amount of loan you need to take out to the value of the overall property. The lower your loan-to-value ratio, the lower the loan interest rate you will have to pay back.

Acreage properties are unique in their valuation depending on the land size and your intentions for the land.

Loans in Australia for plots of land to build upon tend to be riskier for lenders than straightforward home loans, partially because they are more difficult to sell should you default on your loan; thus, it is important to do what you can to negate this risk by ensuring a lower.

Land Value Assessment

Valuing rural land is a delicate balance – it all depends on the intended purpose of the land and projected business rates based upon any agricultural ambitions. If the land is deemed “arable”, it will already be considered by the local council to be in an RU4 zone.

The more commercial the land, the more niche it is to sell, and therefore the property will be deemed more “risky” and require a higher interest rate or else a higher deposit to negate this.

Rural Zoning and Development Restrictions

It’s important to be aware of rural zoning restrictions and how they can influence your financing options.

If you are looking to buy an acreage near Sydney, you will likely either fall within NSW’s RU2 (rural landscape) zoning or RU4 (rural small holdings) zoning, depending on the arability of your land. It is important to establish this early as all lenders consider zoning information differently.

Potential Income From the Land

Your plans for your acreage will make an impact on your eligibility for a loan. There are many routes for acreages, from more traditional routes such as farming and agistment to revenue streams such as tourism, but this increases the overall risk to the lender and could reduce the number of options you have in terms of obtaining a loan.

If you are risk averse, here are the general rules lenders follow to establish whether you have a commercial property:

●      Is the property more than 10 hectares?

●      Does your agricultural business have an annual gross projected income above $20,000?

●      Is it probable that you are going to turn a profit in 3 of the next 5 years?

●      Do you intend to develop a significant agricultural business that you intend to rely upon to pay your loan back?

As you can see from this, unless you have significant agricultural ambitions, it is unlikely you will be deemed a commercial farmer. Hobby farms require different financial advice to commercial property.

Summing up

If you’re buying land and enjoying the rural lifestyle, there are many routes you can take to finance your dreams. Utilise financial advice and decide on the best home loan for your situation. These are the cornerstones of making your rural property ownership dreams a reality.

Learn more about Provincial Homes’ gorgeous acreage house designs here, or read our customer testimonials for more insight. If you have any further questions, please don’t hesitate to reach out to our team.

Frequently Asked Questions

What factors do lenders consider when approving a rural property loan?

When approving rural property loans, lenders consider factors such as your income, your intentions for potential farming of the land, and the size of the property.

Can I use my existing property as collateral to finance a rural property?

Absolutely. You can release equity from an existing property to aid in financing your purchase of land for a rural property.

What is the role of a mortgage broker in securing acreage financing?

A mortgage broker’s role is to research the best deals for home buyers’ financial situations. They will also bring their own expertise and advice.

Are there any government incentives or grants for buying rural land or building a home?

If you are looking to buy your first home, you may be eligible for one of 10,000 places on the Regional First Home Buyer Guarantee scheme, which comes with benefits such as requiring a low deposit (5%).