What you should know about hobby farm home loans

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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Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

  • Costs are calculated on the current variable rate however they could change in the future.
  • Loans are assumed to be principal and interest
  • Fixed-rate loans with terms greater than five years are still assessed on a five-year basis, so 10-year fixed loans are assessed as being only five years’ long.
  • Break costs are not included.