Financing agriculture properties can absolutely come with it’s own special set of challenges.
Despite this, there’s no denying that more and more people are seeing the allure of moving from large city centres to a more quiet rural lifestyle.
If you’re working with a borrower who wishes to purchase property that is zoned or currently used for agricultural purposes, there are mortgage options for them with MIC’s and private lenders.
Legally speaking, there is actually no difference between the security a lender takes over agricultural land and regular residential land.
There is however, one large challenge for the lender to consider.
This challenge lies in the layers of farm protection legislation that has been enacted both federally and provincially. The effect of this legislation creates a situation where it is much more difficult to foreclose on agricultural properties. And this is why many lenders avoid them.
Now, this does not mean the borrower is out of luck and their dreams of rural living will be dashed.
Here are a couple of considerations that can make a difference to your lender:
- How a borrower earns their income will matter in the case of financing agriculture land. If the borrower earns their income from farming their property instead of from a traditional job this can create a potential issue for the lender. Whereas if a borrower maintains a traditional job and just happens to live on a large parcel of land, this can offer more security in the eyes of the lender.
- How the property is zoned and how it is being used. A piece of land already zoned for agricultural use can make financing more difficult as farming would be considered a ‘permitted use’. Land zoned for farming can make foreclosing on the property more difficult for the lender.
- If animals or livestock are involved and the property looks more like a farm than a residential acreage, this can potentially create an issue for some lenders as well.
Basically, if the lender can plan a clear exit strategy should the mortgage go into a foreclosure, the deal may get traction. Gather as much information as possible from your clients before you present the file to your lender so they can provide the most clarity for you and your borrowers.