Mortgages in rural areas
One of the many ways COVID-19 has impacted our lives over the long term is where we choose to live. Statistics Canada released data showed significant movement of people out of major urban centres like Toronto and Montreal. While many headed to nearby suburbs, others moved further away to smaller towns and rural areas.
If you're considering a move to the country, there are a few considerations to be aware of. Some of the key things mortgage lenders will be looking for include:
Water & sewer connections: if you are not connected to the municipal water and/or sewer services, you should ensure any wells and septic systems are properly certified to be in healthy, working order. Many lenders will require formal proof as one of their mortgage conditions.
Zoning & use of land: Residential zoning is ideal, but there can be dozens of other types. In areas with a history of farming, it could still be zoned as agricultural. Lenders will want proof that you only intend to live there, not operate a commercial farm. Be aware of barns, stables, crop fields, and other elements that might come with the property (even if no longer in use).
Distance from major towns & max. loan allowed: when a lender assesses a property, they are concerned with marketability - how easily it can be sold at an acceptable price. Marketability often drops as you get further away from town centres, in part because there are less buyers (no matter how nice the house is).
Consequently, many lenders have maximum loan amounts for rural areas (and some won’t lend there at all). Two guidelines may come across include the hard cutoff (e.g. max loan of 70% of value) and the sliding scale (e.g. loan 80% of the first $1M and 50% of the remaining balance).
Property appraisals: an appraisal from the lender may suffer from a lack of comparable property sales in the area; also, it may only factor in a portion of acreage, and exclude buildings not attached to the primary residence
Increased utility costs: stand-alone heating sources (like oil or propane) and electricity supply charges are often more expensive in rural areas.
This is not to say you can’t get a mortgage on these properties, it just requires a little more diligence to understand what you might be getting into. And on the other side of the equation, these same limitations make it that much harder to SELL rural properties, which is often reflected in lower pricing and extra flexibility on offer conditions.
If you’re looking to get away from city life, contact us and we’ll help you plan out the best way to make it happen.
