Rural Mortgages, Land Mortgages, And Land Title Loans

Whether you want to buy a few acres of farmland or untouched wilderness, it can be a valuable investment. Even small parcels may have great value if there are water or mineral resources found on them. 

If you’re looking to finance a piece of land you want to buy, you can try getting a land title loan, land mortgage, or rural property mortgage. However, these financing options differ somewhat from traditional mortgages and can sometimes be tricky when dealing with banks. Read on to find out more about these types of loans.

Key Points

• A rural mortgage is used to purchase property in rural areas.
• A land mortgage is used to buy undeveloped land. 
• A land title loan is used to access the equity in land already owned.
• These types of loans differ from traditional mortgages, so it’s important to understand how they work and what type of property they apply to before choosing your financing strategy. 

Can You Get Land Financing In Canada?

Yes, you can finance the purchase of land. However, it’s important to understand that land mortgages are different from traditional residential mortgages.

For starters, you’ll likely need a much higher minimum down payment on a land mortgage. More specifically, lenders may require upwards of 50% down payments on loans used to buy land. 

Further, interest rates are typically higher on land mortgages compared to residential mortgages, making this type of financing more expensive. Lastly, you may be restricted on the loan amount you can acquire. Lenders may limit the loan amount they provide due to the higher perceived risk of land mortgages. 

If you choose to finance the purchase of land, there are several financing options to choose from, depending on the exact type of property you’re buying: 

• Second mortgages
• Land mortgages
• Construction mortgages
• Agricultural loans

Types Of Land Financing

Depending on what you plan on doing with the land, there are specific types of loans you can apply for. For example, if you want to buy farmland, you can apply for a farm mortgage.

Land Mortgages

This is a type of mortgage loan that is used to buy a plot of land. The focus is again on the land itself, not what is on the land. 

These loans tend to require larger down payments and higher interest rates compared to regular mortgages. That’s because land loans are perceived as a higher risk for lenders, who then require more money down and charge more interest to compensate for this additional risk. 

Serviced Vs Unserviced Lots

It’s essential to determine whether the land you’re buying is serviced or unserviced, as this directly affects utility access, financing, and overall expenses.

• Serviced Lots: These plots of land are already serviced and connected to essential utilities, such as water, electricity, and heating. As such, these pieces of land are ready for development. Serviced lots in urban areas may require slightly lower down payments of up to 30%.
• Unserviced Lots: These lots do not have utility connections in place. All connections and infrastructure will need to be installed before building. Down payments on land loans for unserviced lots can be as high as 50%. Mortgage rates may also be higher, and loam limits may be lower compared to serviced lots.

Construction Loans

A construction loan (also known as a home builders mortgage) allows you to borrow money to purchase land with the intention of building a structure on the land. The funds can be used to cover the cost of the land and the building you construct. The money from these types of loans is accessible in stages, or “draws”, over certain milestones. 

Construction loans allow you to build your own custom structure without having to buy land with an existing building. Instead, you can buy a piece of land, design the building, and eventually build it. 

Learn more: New Construction Mortgage

Mortgages For Rural Areas

If you’re purchasing acreage solely for residential use, the financing process is much like buying a home in an urban centre. However, if you plan to raise livestock or grow crops, additional rules and regulations apply, making it important to understand the differences before moving forward.

Land For Farming 

If you plan to buy or expand farmland, then you’ll want to take out a rural development loan. This type of loan is available to individual farmers or agricultural co-operative members, as well as those looking to purchase homes in rural parts.

Rural development mortgages are available at most big banks, credit unions, and some alternative lenders. 

For Rural Residential Properties

The type of mortgage you apply for will depend on the acreage size of the land you want to purchase, as well as where it’s located. 

Generally speaking, a traditional acreage with a house and garage may be approved for financing for a limited number of acres, depending on where the land is located. For instance, land less than 10 acres and within close proximity to a city may require a 20% down payment. However, larger properties in more remote locations often require higher down payment amounts.

Land that does not include a house may require a land loan instead of a traditional home loan. Land loans typically require a higher down payment than a regular mortgage, often at least 25%. These loans also come with higher interest rates, though they can be ideal if you intend to build a house.

Learn more: Rural Development Loan 

Farm Mortgages

Also referred to as an agricultural loan, a farm mortgage may be suitable if you’re buying land for the purpose of developing agriculture. In this case, you can apply for an agricultural loan and even get financial assistance through the Canadian Agricultural Loans Act (CALA), a government-backed loan guarantee program.

Learn more: How To Get A Farm Mortgage

Mortgages For Rural Properties, Land, And Farms: An Overview

The following chart provides a quick overview and comparison of rural mortgages, land mortgages, and land title loans:

Where Can You Get A Mortgage For Land?

Depending on the type of loan you’re looking for and your current financial situation, you could get land financing from the following:

Big Banks

Some big banks in Canada offer land financing including construction loans, land mortgages and farmland mortgages. 

Traditional banks generally have stringent requirements that borrowers must meet in order to be approved for a loan. If you have trouble meeting these criteria, you may want to seek out land financing from an alternative lender. These types of lenders often have flexible loan requirements, making their loans easier to qualify for.

Private Mortgage Lenders

Aside from banks and credit unions, you can also find land and agricultural mortgages from private mortgage lenders. These are private individuals or companies that lend their own capital to borrowers and are not federally or provincially regulated.  

Loans from private lenders typically come with shorter terms and higher interest rates, so they’re more expensive than conventional loans. That said, they’re easier to get approved for, which is helpful for borrowers with low credit scores. 

Does The Government Of Canada Have Any Programs To Help You Buy Land? 

The Canadian Agricultural Loans Act (CALA) Program may be available to you if you need assistance accessing a loan to buy farmland. This program was created to make loans more easily available to farmers who can use the funds from these loans to build or develop farms.

Under this program, the federal government backs lenders who offer CALA loans to minimize any risks if borrowers default on loan payments. More specifically, the government guarantees lenders the repayment of 95% of net loss on defaulted loans. 

Loan amounts are limited to a maximum of the following:

• $500,000 maximum to buy farmland and build or improve buildings on the land
• $350,000 maximum for all other loan purposes

Other Ways To Finance Land In Canada

In addition to conventional agricultural loans from banks and other lenders, there are other ways to fund the purchase of farmland:

Seller Financing

Also referred to as owner financing or vendor financing, seller financing means that the seller serves as the lender for an agricultural loan. Rather than apply for a loan with the bank, for instance, you’ll make a down payment towards the purchase of the land and make subsequent loan payments directly to the seller. The seller holds the loan, and not a lender. 

Home Equity Loan

If you currently own real estate, you may have enough equity in the property to access it in the form of a loan. This is known as a home equity loan and involves borrowing from the equity in your property and using the funds to cover a large purchase, such as agricultural land. 

Since your home serves as collateral for the loan, it’s easier to get approved for and often comes with lower rates than unsecured loans. You can use this money to pay for a parcel of land in cash instead of having to take out a mortgage. Instead, your loan payments would go towards paying off your home equity loan. 

Things To Keep In Mind When Buying Land

Before buying land, be sure to keep the following factors in mind:

Bylaws And Zoning Requirements

Check local zoning laws to make sure the land you’re interested in buying can be used for your intended purpose. For instance, you may be looking at purchasing land for the purpose of building a home or growing agriculture. Whatever your intentions are, you’ll need to make sure you’re permitted to do so first before buying the land. 

Raw Vs Vacant Land

Make sure you understand that there’s a difference between raw land and vacant land: 

• Raw Land: Raw land has never been developed. That means there’s absolutely no development on the land, including utilities, roads, and structures. 
• Vacant Land: Vacant land may have been developed before but is not being currently used.

Raw land may require a much more significant investment to make it usable for farming or building a house. So, even if you’re getting a lower price for raw land compared to a comparable-size vacant land, you’ll likely need to pour more money into developing the raw land first.

Taxes

Vacant land is generally exempt from GST/HST if it is not considered capital property that’s been used primarily for business purposes. However, if the land is considered capital property being used mainly for business or has been subdivided into more than two parts, it may be taxable. 

That said, it’s a good idea to speak with a representative from the Canada Revenue Agency (CRA) or your provincial tax office to verify whether taxes would apply in your specific transaction.

Additional Reading

New Mortgage Rules In Canada 2024: The Ultimate Guide

How To Get A Mortgage On A Cottage In Canada: The Ultimate Guide

Can You Use Rental Income To Qualify For A Mortgage In Canada?

Bottom Line

Depending on the type of land or property you’re buying, rural mortgages, land mortgages, and land title loans offer different financial solutions. Whether you’re buying rural or undeveloped land, or want to borrow against an existing land title, it’s important to understand the ins and outs of each type of loan before applying. Choosing the right financial product can help you make a more informed decision while protecting your investment.

Land Loan FAQs

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.