📅 Last Updated: June 7, 2024
✏️ Written By Caitlin Wood, BA

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 can sometimes be tricky when dealing with banks because they often try to avoid granting them due to the perceived risk.

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 a larger down payment than a normal mortgage does. This is so the buyer has a larger amount of equity in the land and the bank does not have to risk as much in upfront capital.

Land by itself is seen by banks as a less secure investment than land with a house or a farm on it (unless the location is great). If the debt cannot be paid down by the owner, then the land has to be resold, rented out, or have something built on it to increase its value, leaving the bank with nothing but a piece of land to sell if they have to foreclose on it.  This is one of the problems banks have with land mortgages. The investment is only on the lot itself. 

Rural Property Mortgages

These are mortgages granted by lending institutions that focus on properties typically located outside of an urban area, and in a rural development area. Such loans are considered among the riskiest to banks due to a number of factors. One is that many of these rural mortgages do not require much equity upfront from the borrower. That is, the owner of the property does not have to offer much of a down payment so the bulk of the financial transaction rests with the bank.

Secondly, if something happens and the buyer cannot pay back the loan, it is much harder to resell the property since it is often in a remote location. 

Land Title Loans 

A land title loan works in the same way that any title loan does, the title to the land is provided as collateral to secure a loan. Banks are leery about these types of loans due to the risk associated with the borrower defaulting on their loan. If a borrower cannot pay back the loan, the bank would be required to foreclose on the land and resell it to recoup its losses. The problem here is that depending on where the land is located it may be difficult to resell and thus has little to no value for the lender.

Who Offers Agricultural Loans In Canada?

All big banks in Canada offer agricultural loans to borrowers looking for help financing the purchase of farmland. Banks also offer loans to help cover the cost of expensive farming equipment or to build structures on the land if required.  

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 an agricultural loan from an alternative lender. These types of lenders often have flexible loan requirements, making their loans easier to qualify for.

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 $500,000 to buy farmland and build or improve buildings on the land, and $350,000 for all other loan purposes. For example, if you’re approved for a $350,000 CALA loan, you still have another $150,000 accessible to you to buy more farmland, build another structure on the land, or repair a building. 

Are There Other Ways To Finance the Purchase of Land? 

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. Rather than a traditional lender offering the loan, the seller will hold the loan. 

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 home 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. 

Construction Loan

A construction loan allows you to borrow money to purchase farmland 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. 

Private Mortgage Lenders

Aside from banks, you can also find 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

Land Loan FAQs

Can I get a mortgage to buy land? 

Yes, most lenders offer land loans to qualified buyers, and the funds can be used to purchase undeveloped land. These land mortgages differ from traditional residential mortgages. 

Are there any zoning laws when you buy land? 

Zoning determines how land can be used and the type of structures that can be built on it. For instance, land that is zoned for agricultural purposes must be primarily used for agriculture, unless the land is rezoned. However, the rezoning process is usually lengthy and expensive, and there’s no guarantee that it will be approved. 

What kind of land can I buy?

In Canada, you can buy three types of land; raw land, vacant land and crown land. Raw land is the cheapest to buy but needs the most work. On the other hand, vacant land is more expensive but easier to develop and finance. Crown land is only allowed to be used if private land isn’t available, and requires approval, which can be a lengthy process with no guarantee of approval. 

Is a private mortgage lender better than a bank?

Private mortgage lenders are not like banks. They can decide as they go how much risk they are willing to take on. They are not under the same overly structured regulations as banks and other traditional financial institutions, nor do they have to require unrealistic upfront equity payments if they don’t want to. They have the freedom to choose what they are willing to do, based on your ability to pay, and other factors. They can work with you to decide what you can reasonably afford and work out an arrangement that is good for both parties.

Bottom Line

If you have been to the banks but they have turned you down, and you are in need of a land title loan, land mortgage, or rural property mortgage in Canada, then apply with Loans Canada. Let us match you with the right licensed specialist who understands your needs and is willing to work with you to find a solution that fits.

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

Caitlin Wood Priyanka Correia Lisa Rennie Bryan Daly Cris Ravazzano Margaret Johnson Kale Havervold Liz Enriquez Sean Cooper Veronica Ott Corrina Murdoch Chrissy Kapralos

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