How To Successfully Finance Rural Real Estate

Raw Land Loans

- What is the zoning on the parcel of land? Country Residential is the best, but quite often larger parcels are zoned Agricultural. This is important to know upfront as the available mortgages options are tied to the zoning of the property.

- More than one title? Again, larger parcels may encompass many titles; we require titles on each.

- Quite often, land titles are not sub-divided until the entire subdivision and/or pre-sells are complete. Ensure we understand the timeline of title registrations.

- Building commitment? Is there one put forth by the developer? If so, how long?

- Restrictive Covenants? A subdivision may contain restrictive covenants that may be relaxed or extremely strict.

- Is there a drilled Water Well? If so, is a Water Potability and Chemical analysis available? How current is it? If not, will you be able to provide a current report, is the well head accessible?

Raw

Land

Urban vs Rural

Max 75% LTV; Loan amount depends on location

5 acres is not enough!

Yes, many lenders only use up to 5 acres for market value;

however, there are many lender options in the marketplace that allow for more.

All valuations start with HOUSE + GARAGE +

1-5 acres of land

< 10 acres of land

< 15 acres of land

< 40 acres of land

< 160 acres of land

Insurers = "residential" land area

All properties should be ...

TIP - Ensure the proper lender is chosen for the specific property type!!

Mortgage lenders tend to fall in one of 3 categories:

1. Those that really don't want any country residential deals; they prefer "city" type business;

2. Those that will consider; but property must meet strict conditions;

3. Those that know & understand country residential.

* Residential properties with concrete or pressure treated wood foundations are acceptable.

* The housing unit should be representative of the standard normally found in the community. Reasonable ground floor area.

* The property must be properly designed and in adequate physical condition to be livable for the full duration of the mortgage.

* Maximum amortization must be 5 years less than the remaining economic life.

* The property must be at least 97% complete (difference for seasonal hold-backs only).

* New properties or those built within the last 35-40 years which are in good condition. Or, older properties that are in good repair and are located in good residential areas. Or, properties having had sufficient improvements to "keep pace with the neighborhood".

* Exterior Finishes: Brick veneer, solid brick, stone veneer, solid stone, stucco, wood siding, aluminum siding, vinyl siding.

* Acceptable Heating Sources: Natural gas, electric furnace, oil furnace, electric baseboard, geo-thermal, radiant, hot water.

Urban

* Properties fully serviced with municipal water and sewer.

* There should be some amenities in the area such as bus service, schools, and shopping that will assure buyer interest in a resale situation.

Rural

* Property fully serviced with well, water co-op or cistern and septic tank/field. Potability report is required.

* Loan to value may be reduced based on distance to amenities.

* Rural properties will be considered providing they are not active farming operations and the applicant's income to service is not derived from the property.

* For appraisal purposes “house + garage + up to __ acres” will be evaluated.

* Multiple zoning options.

CREB Forecast 2017

How To Successfully

Finance Rural

Property

Nooooooo!

This is not a suggestion to misrepresent,

absolutely not ... if a property is commercial or a farm,

then that's a fact. But for typical country residential,

consider your wording carefully when entering your

remarks in listings. For example:

* Is a typical 4 acre acreage ... really a hobby farm?

* Just because a property has a larger land size ...

is the subdivision potential actually guaranteed or approved?

* Do you know that all business types can be operated

from this property?

Advertising these terms in your listing WILL reduce the mortgage lender options and/or it may be a more costly transaction

(appraisal costs, interest rate, etc.)

for your potential buyers.

Tips for success!

My Final Tips!

* Do not use the word "farm" in any manner (unless it actually is a working farm; this includes the term "hobby farm").

* If a property is zoned AG; disclose if the property is or isn't being used for agricultural purposes.

* Confirm (in kilometers) how close the property is to the nearest metro area (i.e. city).

* Do not mention sub-division unless you know for a fact that the subject property will be sub-divided by a new buyer.

* Remember ... barns, outbuildings, fencing, etc.

are not included in residential market value (appraisal) so they shouldn't be the focal point of value.

We cannot ignore listing comments,

mortgage lenders see them too!

Typical Rural Property

Ensure your clients are properly pre-qualified, this includes knowing where their down payment is coming from.

Do not use the word "farm" in any manner - unless it actually is a working farm.

Disclose when subject property is a mobile home.

Clarify zoning; define if the property is or isn't being used for agricultural purposes.

Water potability, if any issues - deal with them!

Confirm (in kilometers) how close the property is to the nearest metro area (i.e. city).

Sub-division shouldn't be mentioned unless you know for a fact that the subject property will be sub-divided by a new buyer.

Try not to make barns, outbuildings, fencing, etc. the focal point of value.

Ensure the proper lender is chosen for the specific property type!!

=> Which means having the right team working for the clients.

=>Which means ensuring your clients pre-qualification is with a suitable lender for their preferred

property type.

Allow enough time for Financing Condition in the Purchase Agreement.

Promptly send the fully executed Matrix, OTP, copy of deposit cheque to bank/broker as quickly as possible.

Prepare clients for "rural realities"

Zoned CR | Land < 5 acres | Property < $1M Value |

Conventional construction | < 50 km to metro area | Owner Occupied

Specialty Markets

Flood way | Non-conventional construction | Age restricted properties | Log-homes | Leased-land | New Construction | Property > $1M value | AG Zoning | Land > 5 acres |

<>50km to metro area | First Nations Reserve Land (Crown) | Resort/Cottage |

Farm/Commercial | Investment Property | Developers/Builders | Equestrian Centre

Bareland Condo | Reverse Mortgages

Restricted / Ineligible Properties

Rural Listing

Descriptions

Assumptions | Agricultural Properties (income producing) | Co-operative housing |

First Nations Reserve Land | Former Grow Ops | Life lease/life interest |

Mobile/floating/modular homes (non-affixed) | Self-Directed RSP Mortgages |

Time Share | Fractional Interests | Rental Pools | Hotel Condos |

Co-ownerships | > 4 purchasers

Rural

Property

Types

Please ... don't call a mobile

home a modular home

To the Listing Agents ...

Modular Homes are houses that are manufactured in sections. These sections are then transported to the home site and permanently affixed to a foundation. Once assembled, modular homes are essentially indistinguishable from typical construction.

Manufactured (Mobile) Homes are one-story homes built on a steel frame, manufactured in either one or two sections, and assigned a serial number. They are movable from one location to another, then permanently placed on a foundation or drilled concrete piers, poured concrete pedestal, concrete block pedestal, or anchored steel piles and skirted.

RTM Ready to Move Homes are constructed in one piece. Transport of the

finished home to the home site then occurs, where it is affixed to a foundation. Once on the foundation, completion of a few outstanding items such as heating system and stairs must be complete.

"Hobby Farm"

"Subdivision Potential"

"Commercial Potential"

"Operate Your Home-Based Business"

"Revenue Generating

Property"

... do you think this is what a Prime Residential Mortgage Lender

wants to see?

TIP - Ensure your listings and due diligence accurately verify the property type.

By Candace Perko

Mortgage Broker