When you want to buy land that hasn’t been developed yet, lenders will ask for a bigger down payment and charge a higher interest rate. This is because it’s riskier for them to lend money for raw land. If you want to buy land that needs a special permission (called zoning) to be used for something like a house or a business, it will be more expensive and harder to get a loan for. Most lenders prefer to give loans for houses that are already set up, not land that might become a house someday.

Also, if the land doesn’t have important things like a safe water source, it will be even harder to get a loan. If a lender does agree to give you a loan, they might ask for a huge down payment (35%) and treat it like they’re lending for raw land. For example, if the land doesn’t have a water source, they might make you get a connection to the city’s water system or have a working water well on the land. They might also make you get a water test to make sure the water is safe to use.

Airdrie and Cochrane Acreage Loans

Lenders want to loan money to people who are buying properties that can be easily resold because some people who get mortgages end up not paying them back. The amount of money you have to pay upfront for the property and the interest rate offered by Airdrie and Cochrane mortgage lenders depend on how risky the lender thinks it is to loan you the money. However, different lenders may have different rules.

Acreage

Home loans for conventional houses only cover properties that are less than 5 acres. If the property is bigger than that, it’s called an acreage loan and can go up to 160 acres. However, not all Airdrie and Cochrane mortgage lenders will approve loans for these types of properties.

If you want to buy a property with up to 160 acres and a home, you’ll need to make a 20% down payment. If you make a smaller down payment, the CMHC will decide how many acres they will consider in the appraisal value.

For example, if the appraisal value of a home, garage, and 5 acres is $200,000 but the sellers want $220,000 for the barn too, the lender won’t finance the barn. That means you’ll have to come up with the extra $20,000 on your own.

Buildings

If you’re buying a big piece of property, it might have outbuildings like sheds, barns, workshops, cabins, or storage spaces. Usually, when you get a loan for this kind of property, the bank will only give you money for the main house and one garage. They will take into account the value of the extra buildings, but won’t give you any extra money to pay for them.

For example, let’s say the property is worth $600,000. The main house and garage are worth $500,000, and the extra buildings (like a shed and barn) are worth $100,000. The bank won’t give you enough money to pay for the $100,000 worth of extra buildings, so you might need to talk to a mortgage broker to figure out how to get that money.

If you’re living in a rural area, you might want to build more than one house on your property. Keep in mind that banks will only give you a loan for one house. You’ll have to talk to a mortgage broker to see if you can find someone who will give you a loan to build a vacation home or guest house.

Utilities

Lenders always require a higher down payment and increased interest rate to reflect the risk associated with raw land. Any property that requires a zoning change to reach its full potential will cost more than one that doesn’t. This is why acreage purchased with the hope of being zoned residential or commercial will be shunned by companies that prefer residential mortgage loans. However, they will avoid residential properties that require infrastructure to be built for it to become habitable. For example, if there’s no safe water source on the property, most lenders won’t touch it. If they do finance it they will require 35% down payment and treat it as purchasing raw land. This could be a connection to the municipal water system or a tested and running water well on site. In the latter case, lenders will require a water test before they’ll issue a mortgage.

Down Payment Requirements

If you want to buy a ready-to-live-in house in an area with services like water and electricity, you might only have to pay 5% of the cost upfront. If you pay 20% upfront, it will lower your monthly payments and you won’t have to pay for mortgage insurance. But if you want to buy land that has access to services like utilities, most mortgage lenders will ask for a 20% down payment. The interest rate will be a bit higher than a normal mortgage. It might be hard to find a mortgage lender in Airdrie and Cochrane who will let you buy a serviced rural lot with only 20% down.

If the land you want to buy doesn’t have clean water or electricity, it will be even harder to get a loan. You might have to talk to a mortgage broker in Airdrie and Cochrane to find a lender who is willing to lend you money. If there’s no electricity or sewer service, it will be really hard to find a lender who will lend you money, unless it’s for a farm.