What you should know about hobby farm home loans

As a country, Australia is about the outdoors, and many Aussies would prefer to live somewhere quieter and greener. Purchasing a hobby farm is one way of achieving this dream, and allows you to enjoy the peace of the countryside and even raise a crop or a few cattle. Getting a hobby farm home loan can be a difficult task, though, as you’ll need to convince the lender you’re not planning on farming commercially in addition to negotiating for the preferred loan terms. Your best bet may be finding a lender specialising in loans for rural properties.

What are hobby farm home loans?

If you’d like to try the rural life without actually becoming a farmer, a hobby farm may suit you just right. Depending on your budget, you can buy a few hectares of land, build a residence and take up some farming or animal husbandry as a recreation. While all this may sound easy and restful, trying to find hobby farm loans can be quite tricky. For instance, the size of your rural property is critical to the amount of money you can borrow without being considered a commercial borrower.

Most lenders do not consider property exceeding a 100 hectares in size as hobby farms, and will ask you to apply for a commercial farm loan. Even for farms of size less than 100 hectares, the deposit you have to put down increases with the land area. Note that lenders use the term loan-to-value ratio (LVR), meaning the ratio of the home loan amount to the value of your farm, to indicate how much you can borrow. Your may be able to borrow a certain LVR based on the size of your hobby farm.

Some lenders may offer you a 100 per cent LVR hobby farm home loan if you can find someone to guarantee the loan. You may, however, need to check several boxes before any such loan is approved. Remember that if you are planning to buy a large hobby farm, you need to save up a greater percentage of the farm’s value to pay the deposit on the hobby farm home loan.

Things to remember when applying for hobby farm home loans

You probably won’t qualify for a hobby farm home loan if you’re planning to farm for profit or use money earned from the farm to pay back the loan. Again, the loan will only cover the value of the rural land and any fixed structures previously constructed on it. A hobby farm home loan will not cover farm equipment, livestock, or agricultural implements and products.

Also, lenders offering hobby farm home loans may only approve loans for rural properties that meet certain criteria, including:

• Location and zoning criteria: Many lenders may offer loans only for hobby farms located in some postcodes and zones. Zoning can vary from state to state but, in general, the land must be classified as either rural, residential, rural residential, or flexible. As the terms suggest, the use of the land matters as much as its size.
• Accessibility: You may be thinking of your rural home as a retreat, mostly cut off from the rest of the world. But lenders will require some basic access infrastructure such as a dirt road, and utility connections for power, water, and sewage.  

Also, you may need to check with lenders about the kind of improvements you can make on the farm. Any development that’s considered commercial, or violating zoning regulations, can be considered a breach of the loan agreement.

How do I apply for a hobby farm home loan?

Before you start meeting lenders or putting together a home loan application, you may want to confirm the zoning, land use, and proposed developments in the area you’re planning to buy a hobby farm. You may be able to get this information from the local council office, along with suggestions on the lenders you can approach. Having this information may help you confirm your choice of rural property and also ease your conversation with lenders. You should also know fairly certainly your plans for the land - are you planning to raise animals, or grow a crop or two?

You’ll then need to find a lender offering a suitable home loan based on the size of your hobby farm and the planned use. You can reach out to a mortgage broker in case your research doesn’t help you find the right lender. A broker’s experience can save you time and effort and even speed up the application process. You should remember that some lenders may insist on assessing your hobby farm, in addition to verifying your income and credit score, before finalising the terms of your home loan. You may need to negotiate on the deposit or find a guarantor if you aren’t able to put down the necessary deposit. 

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