Borrowing for over 10 acres

[Not enough!!]

I'm trying to find out about borrowing finances for over 10 acres as the banks aren't interested.

Its for a young couple, there is no house on the property but it has a planning permit, they wish to farm cattle, and continue working.

They both work but have a youngin on the way, have a good deposit after selling their first home.

Rabo Rural bank was mentioned, but does anyone else have any contacts or clues, they are going to try a Finance broker.

They do have a farm plan etc, so is there a borrower with low fees, reasonable interest rates out there somewhere?

Regards
Stevo

[Yanis]

Do NOT!!! use a broker. They get kickbacks from the bank so go with the bank with the largest kickback. They will often sign you up for a high interest high fee loan for which you end up paying over the odds. I am not saying that they are all dishonest but you will get a better deal negotiating on your own.

Do not be discouraged by a single knock back. There is money out there and you can often get a good deal. If you have never borrowed before it can be difficult. We have a long proven track record so we don't have an issue. Once you have borrowed and get a good record it does become easier.

Building societies are often a good place to go, but shop around.

You best bet is to compile your general circumstances and requirements (income/liabilities/assets/loan amount/term) into a number of institutions and ask them what the payments over that term will be including all fees and charges. Also ask them whether they are likely to approve the loan and what needs to change to obtain approval. Most places are quite open as to whether they are likely to approve. Also get a copy of your credit record, that is vital in obtaining money. If that has black marks or is erroneous then you need to fix it.

The thing is to shop around. You are the customer and they are selling to you and making money off you so don't feel as if you have to cow tow.

Another thing to consider is that if you have a relationship with a good borrower then that can help. We have a long standing relationship with a particular bank manager and introduced our children to her when they needed to borrow for their houses and that went a long way since our reputation stood them in good stead.

Finally - never ever go guarantor under any circumstances. It is a recipe for disaster.

John

[cava]

Whilst it is not very popular these days, consider looking into vendor financing with the seller.

The banks hate vendor financing, and will do everything to discourage it as it affects their bottom line.

[Not enough!!]

Thanks to the both of you for some great ideas and knowledge, its funny John that you mentioned going guarantor - I did once 28 years ago, long story but it took 15 years to get my money back, never ever again!!!

Vendor financing is a great idea - if they come to the party (here's hoping).

Ill pass on all the info to the youngin's, and see what happens, they have 10% deposit ready.

Cheers
Stevo

[Pearo]

Do NOT!!! use a broker. They get kickbacks from the bank so go with the bank with the largest kickback. They will often sign you up for a high interest high fee loan for which you end up paying over the odds. I am not saying that they are all dishonest but you will get a better deal negotiating on your own.

Do not be discouraged by a single knock back. There is money out there and you can often get a good deal. If you have never borrowed before it can be difficult. We have a long proven track record so we don't have an issue. Once you have borrowed and get a good record it does become easier.

Building societies are often a good place to go, but shop around.

You best bet is to compile your general circumstances and requirements (income/liabilities/assets/loan amount/term) into a number of institutions and ask them what the payments over that term will be including all fees and charges. Also ask them whether they are likely to approve the loan and what needs to change to obtain approval. Most places are quite open as to whether they are likely to approve. Also get a copy of your credit record, that is vital in obtaining money. If that has black marks or is erroneous then you need to fix it.

The thing is to shop around. You are the customer and they are selling to you and making money off you so don't feel as if you have to cow tow.

Another thing to consider is that if you have a relationship with a good borrower then that can help. We have a long standing relationship with a particular bank manager and introduced our children to her when they needed to borrow for their houses and that went a long way since our reputation stood them in good stead.

Finally - never ever go guarantor under any circumstances. It is a recipe for disaster.

John

Going to have to disagree re broker. I use one exclusively and he works for me, not the lenders. I have a mate who works for one of the big banks and he is unable to compete with the rates my broker gets for me. A good broker is worth their weight in gold. Mine gets a commission for new loans, but he also renegotiates rates on existing loans and does not make a cent out of it. This is why he always gets my business..

On the other hand, I will agree that you should never go guarantor. Seen many people hurt by that.


Remember, getting finance the only thing the lender is concerned about is if you default will they get their money back. As a regular lender for real estate, I can also confirm that since the GFC the lenders have tightened up lending. If the lender things the 10 acres is not a wise investment then you will not get finance. If you do get finance on a risky investment then you are going to pay a premium for it.

[FenceFurniture]

Do NOT!!! use a broker. They get kickbacks from the bank so go with the bank with the largest kickback. They will often sign you up for a high interest high fee loan for which you end up paying over the odds. I am not saying that they are all dishonest but you will get a better deal negotiating on your own.:~ As a former broker I can say that this is way off the mark. Yes there have been (and no doubt still are) some dodgy brokers out there, just like any industry, but rules have tightened up in the last 7-8 years, and it's no easy task to become a member of the MFAA.

It's not a kickback - it's a fee for service - how else do they get paid? It's up to the borrower to do their own due diligence to ensure the loan isn't high interest/fee. The fee for service is because the broker is doing the bank's job for them. The payments made to the brokers are almost uniform so there is usually no particular advantage to them in using one lender over another.

You will definitely not always get a better deal negotiating on your own - in fact rarely. One of the favourite tricks of banks is to cross-collateralise properties when someone borrows for a second or subsequent property. This is one of the most dangerous things a borrower can have done to them, and the banks will not explain what those dangers are (and they should be compelled to). Furthermore, there are no benefits for the borrower in crossing up the properties. In the 700-odd loans I wrote there was only ever one case where there was good reason to cross the properties, and that was because one of the properties was intended to be sold early (within a couple of years, and crossing obviated discharge fees). When properties are crossed the lender has you by the goolies, just waiting for a chance to squeeze.


Going to have to disagree re broker. I use one exclusively and he works for me, not the lenders. I have a mate who works for one of the big banks and he is unable to compete with the rates my broker gets for me. A good broker is worth their weight in gold. Mine gets a commission for new loans, but he also renegotiates rates on existing loans and does not make a cent out of it. This is why he always gets my business.Sounds like your broker sees the big picture Damien. He is the first person you call - very easy work for him because he has done the right thing.

I actually worked out a way to get many clients out of higher rate fixed loans without discharge fees (nil in many cases). There were certain parameters required but these were often available because of the way I had set the client's loan structures up - using the right product for the client. I think it would be safe to say that I was not the bank's favourite broker for a good long while. They did get the loan back in a different form, but they lost the higher rate for the rest of the fixed term.




The problem with the property the OP is talking about is the fact that it's 10 acres. Very few lenders like them. It may also be a postcode thing: certain postcodes are a no go zone for lenders, based upon history. AFAIK, the reason they don't like them is the chances of being able to sell it if things go pear (not Pearo) shaped. Not so much not being able to get the full value of the outstanding borrowings (because they will just sue the client for the balance), but being able to sell it at all in the wrong circumstances.

[ian]

I'm trying to find out about borrowing finances for over 10 acres as the banks aren't interested.

Its for a young couple, there is no house on the property but it has a planning permit, they wish to farm cattle, and continue working.

They both work but have a youngin on the way, have a good deposit after selling their first home.

Rabo Rural bank was mentioned, but does anyone else have any contacts or clues, they are going to try a Finance broker.

They do have a farm plan etc, so is there a borrower with low fees, reasonable interest rates out there somewhere?

Regards
StevoHi Stevo

From a lender's perspective what you are describing is an uneconomic, uninhabitable hobby farm -- 10 acres is around 4 ha -- being taken on by a borrower with a high risk of default.

When you say a "good deposit" do you mean >20% of the current valuation, or >20% of the current valuation plus the cost of building the house?
Also without giving out too many details are the 10 acres in an area where the typical new house has 5 or 6 bedrooms, 4 or 5 bathrooms, a self contained granny flat and an attached 4 car garage?

There will be a lender out there willing to advance them the necessary funds, but the interest rate will likely reflect an expectation the couple will go bust before any house is completed. Again from a lender's perspective, a small or compact house in an area where the norm is big to huge is a risky proposition.

[Not enough!!]

Hello members, you are all so kind with your help but in the original post which goes like this - i shouldn't have put 10 acres but thats what the bank used as a guide.

I'm trying to find out about borrowing finances for OVER 10 acres as the banks aren't interested.

Its for a young couple, there is no house on the property but it has a planning permit, they wish to farm cattle, and continue working.

As it says over 10 acres, the bank said they DON'T lend over 10 acres, the buyers really want 40-60 acres or even larger but anything over 60 acres is a fait way out of town 60> ks.

There is a property of 40 acres that they like, their deposit covers 10% of total land and getting a house plus shed on there, they only want a 3 BR relocatable home (straight gable put on the proertey 130k), as they can add on later, he has a building back ground (that helps), but has left the building game for a steady reliable income, as long as people keep eating he has a job.

Plus they will live off the grid etc (yes he has done his home work).

I did suggest a broker so I'm going to pass on the above info, they also have a good credit rating, own both cars etc.

I think they got a peeved with the bank saying no, but l say there a more options as mentioned, must check out "canstar" see whats on there.

So here's hoping, they aren't in a rush as they are only paying $180 a week rent, nice home very cosy.

[Yanis]

With due apologies to those above defending brokers I did qualify my remarks that not all brokers are dishonest but the principle that you are relying on someone who gets paid by financial institutions to recommend financial institutions makes them inherently biassed. Sure they "work" for the lender but they are paid by the financial institution based on their sign-up rate. Sort of like relying on a car salesman who is on a bonus.

We went to brokers on several occasions and in every case found that we found better rates ourselves. If you do find that a broker can give you a better rate from a financial institution then fine but make sure you read ALL of the fine print, conditions, fees add-ons (such as insurance etc) and early termination fees. The last thing you want is to be stuck with a loan that looks fine on paper only to end up a high fee contract that you cannot get out of.

If you sign a contract with high early termination penalties you remove your power of negotiation after the fact.

The law can only go so far in protecting you. Caveat emptor.

John

[Yanis]

As it says over 10 acres, the bank said they DON'T lend over 10 acres, the buyers really want 40-60 acres or even larger but anything over 60 acres is a fait way out of town 60> ks.

There is a property of 40 acres that they like, their deposit covers 10% of total land and getting a house plus shed on there, they only want a 3 BR relocatable home (straight gable put on the proertey 130k), as they can add on later, he has a building back ground (that helps), but has left the building game for a steady reliable income, as long as people keep eating he has a job.


We had no issues getting money for a 32 acre property. There are plenty of places that will lend you money on these properties.

John

[FenceFurniture]

There is a property of 40 acres that they like, their deposit covers 10% of total land and getting a house plus shed on there,10% of the total that they want to spend won't be enough I'm afraid. Anything over 80% borrowings (and often <80%) requires Lender's Mortgage Insurance. If you think the banks are -ve about 40 acres, wait until you deal with Mortgage Insurers. Their qualification calculators are much tougher and the properties that they won't approve are much much broader.

For clarity LMI does NOT cover the borrower, even though the borrower has to pay for it (and it's not cheap at all) - it only covers the lender in case of default - that's why it's so hard to get approved.

Sorry to be so -ve but that's the way of it.

[chris0375]

Not nearly enough land to even consider making much more than pocket money off cattle.

[Not enough!!]

Cheers Brett, Ill pass on the info.

Chris it will only be for pocket money and doing their own beef for consumption.

[q9]

Back where I come from...well grew up really...the done thing was, you bought an acerage, built a big shed with shower and toilet + rain tank and septic to keep council happy, and/or parked a caravan next to it and nobody bothered you ever again. Dad just built a shed. And a bathroom extension. Then a living room extension. Then a workshop. Then that grew an extension. Then a carport...

:rotfl:

[chris0375]

Not sure many councils would let you get away with that anymore. Generally no shed unless there is a house. And house has to meet energy efficiency targets, bushfire ratings, bca etc.

[issatree]

Hi All,
I'm glad the 10 Acres thing was cleared up as they wood be lucky to run 5 Cows on it.
I wood have thought you wood need at least 50 Acres.
Then a House & a Bub coming as well. Going to be a bit of a struggle, but it seems they are young & energetic, so it could work.
They woodn't need to buy meat if they had a cow Slaughtered every now & then.

[ian]

Hi Stevo

Unfortunately I think your young couple represent a significant risk to any lender. Apart from an approx 10% deposit (which from a lender's perspective is light-on), they have no equity as such which can be used as collateral against the loan, will still be paying rent and other outgoings, and the property is far too small to make a living from. From a lender's perspective they are seeking business finance -- I believe that's what the 10 acre limit on bank mortgage finance represents -- for what is essentially a hobby farm.
From the lender's perspective, higher risk translates to a higher interest rate.

If they really want a rural lifestyle I believe they would be better served to
1. investigate vendor financing. -- possibly including rent to buy -- but I know nothing about the pitfalls of such schemes.
2. buy a property in town, which when they have a bit of equity behind them could be used as collateral for the farm.
3. find a guarantor -- with all the risk that entails for the person providing the guarantee.
4. find rural property with an existing house they can rent.

Should they be able to find a lender willing to advance the required cash at an affordable interest rate, they may wish to consider leasing most of the property to another farmer for agistment. Perhaps if they plan on generating income through agistment, and can show an in principal agreement, a lender will consider their loan application more favorably.

[Not enough!!]

Thanks everyone for taking the time to answer my queries, I'll pass on the info and I may even have to PM some of you with furthers questions if thats ok?

Mainly in regards to brokers etc, like I said these guys are in no hurry plus they know how to save well, after building their 1st home and selling that, and coming out in front.

[Not enough!!]

The couple decided to buy an established place of a smaller acreage, (13acres) mainly because of the red tape created by Council and the lenders, when trying to build.

Bank said no prob's, so they are really happy,

So they will be able still put on a couple of steers and a few sheep, (dorpers - no shearing, thank goodness,) plus for you vegans a nice big vege patch with a side dish of herbs a plenty.

Now they just have to pay it back, should take 25yrs give or take.