What are the lending criteria?
With so much money and thought process going into securing your farm, a detailed valuation will always be in order. Banks need to know whether the loan will be a solid investment for both parties when it comes to your property. Stay a top of the game by proving that you already have some experience in running the business in a steady financial manner. What they will usually request from you is a financial statement which includes Business Activity Statements (BAS), an Australian Taxation Office (ATO) tax portal printout, or a bank statement for the past three to six months. You might also be requested to submit a business plan that details the market competition and your business model, along with a cash flow forecast.
What do lenders look at when you apply for a rural loan?
The criteria for what lenders look for when you apply for a rural loan differs from lender to lender. Some of the main criteria that they look at are:
- Location: Some lenders have a postcode restriction, which means that they do not provide rural home loans for property that is outside their approved postcodes.
- Land size: There isn’t a maximum land size that lenders won’t allow for your home loan. However, once your property starts exceeding the 100 hectares mark it may not be considered as a hobby farm, and you could be advised to apply for a commercial loan.
- Land use: What you use the land for can determine what type of rural loan you get. If it is used for personal or investment purposes, you will get a rural home loan. However, if it is used as a full functioning farm then a commercial loan will be advised for use.
- Property access: The property you have must have easy access. By building easily accessible roads will help prevent any damage to vehicles, which in turn will keep things such as car insurance low.
You’ll need security
When taking out a loan your lender will need something to use as security should you no longer be able to meet payments due to unforeseen circumstances. An evaluation will usually be undertaken to test the value of your assets. What they usually take as security is your assets that are part of the sale of the farm to sell off then use the money to pay off your debt. This can be in the form of equipment like your tractors and cranes, your livestock, or other income-producing stock.
Getting your deposit ready for a rural property
Placing the deposit for your rural property will all depend on the size of your property and where it is located. The size of your property will also determine whether lenders will look upon your application favorably. Anything under 10ha will make them more likely to approve your application. Lenders can require a deposit ranging from 5% right up to 30%. The reason why lenders are more conservative in loaning you a lump sum of money for a larger farm is due to the unpredictable Australian weather system and the seasonal changes in producing a good crop. Make it less of a hassle by enlisting the services of a mortgage broker that will ensure you get the best deal