Applying for pre-approval for your home loan before you begin house hunting is a wise move – it pays to be well organised and already have a realistic idea of how much your lending institution considers you can afford and what deposit they require. Let’s say you’ve looked around, up and down and yes, you’ve found the perfect property. You’ve agreed on a price with the seller and you’re ready to go – sign me up! However, if you are looking to purchase in a rural area there are a few extra points to consider.
- Whilst a pre-approval amount, is an excellent way to get a general indication of what your bank will lend however there is no guarantee money will be lent on the same terms in country regions, particularly across different suburbs, land sizes and property types.
- With lending behaviour governed largely by perceived risk, this will be a major factor when determining your loan; broadly speaking the amount of finance you can obtain is dependent on location, zoning and valuation. Although you may have pre-approval up to a given level, all else held equal, the actual amount the bank will lend you may not be this high after all matters have been formally assessed during the course of final approval.
Generally speaking, property that has a rural zoning is considered by the banks to be a higher risk and therefore the purchaser will need a larger deposit than required for residential property. The actual deposit percentage will vary from bank to bank and will depend upon whether the property is income earning or merely lifestyle and the parameters the banks use to determine this. If you are thinking of buying a few tranquil acres make a point of asking lenders about the deposit amount you’ll require and how they categorise rural property. We suggest using local lenders and mortgage brokers who are well versed in the risks associated with their local area and as a result have the ‘hometown advantage’ over their city counterparts when it comes to property loans in country areas.