Rural Finance

Been lurking for awhile - lots of great info around here - but I need to ask some advice.

Rural property totalling just over 400 acres has come on the market. I've agreed to purchase a portion thereof, approximately 107 acres which includes the house, sheds, improvements etc in conjunction with another party purchasing the other three hundred acres. I want the house primarily as at 195k for the section I'm looking at its comparable to a house in town without the acerage and other improvements.

I initially thought obtaining a home loan shouldn't be too difficult as I'd be able to borrow around 400k in terms of serviceability if looking at a normal residence. Boy was I wrong.

After a few false starts and reading through a lot of threads here I approached CBA for a home loan. All appeared to be going well up - while not fitting their parameters exactly, it was under 50ha in an ok area, etc and things looked on track. Anyway signed the contract today only to find that there was an issue with CBA because subdivision hadn't gone through (we only got the ball rolling this week).

This was in spite the existing title of the property being available to mortgage until such time as the subdivision does go through.

Property being purchased for 195k, worth around 260k once on separate title. 12k down along with 5k first home buyers grant, family member prepared to guarantor or co-sign loan/title.

I'm trying to avoid getting an agricultural loan if at all possible.

Any ideas?

It's not really surprising as the bank cannot lodge its mortgage unless a fresh title is granted on that new portion.

No title equals no legal security for the bank. Any decent Broker would have identified this issue in the first conversation and saved you a fair amount of hassle and disappointment.

Im surprised (sort of) the bank loans officer didn't pick up on it?

More of a legal issues than anything...you would have had the same problem if you applied for an agricultural loan as well...The lender needs a clean title to finance the property.

Hmm, so no real way around the issue? I didn't see it coming, mainly because I know of a number of ag type loans that have been settled on a deed of trust over a title prior to subdivision. So even though they'd have a title worth 430k to mortgage it would still be a problem?

It's not a problem to settle on a portion of the title as long as the DP (deposit plan) has been lodged with the LTO (lands titles office) and your conveyancer confirms that settlement will be completed with a pick up slips. You're not going to be able to settle before this happens.

lamby said:

Hmm, so no real way around the issue? I didn't see it coming, mainly because I know of a number of ag type loans that have been settled on a deed of trust over a title prior to subdivision. So even though they'd have a title worth 430k to mortgage it would still be a problem?

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The problem is that banks value security over any other criteria. If they cannot register their mortgage, they will not give you the loan. All banks are the same.

Thanks all for the replies so far, Brady, it has currently been lodged with the Development Assessment Commission by the surveyors. Is that the same thing or a stepping stone on the way to the LTO?

Aaron_C, that's sort if whats being bugging me as I've tried to get my head around it, isn't the existing title sufficient security???

FMS, with regards to your comment regarding the bank's loans officer, he kept saying before he would look at it he wanted a signed contract as it was out of the ordinary... I don't know whether he presumed or what happened...

Its more than sufficient security, its just not all yours until the subdivisions completed.

lamby said:

Thanks all for the replies so far, Brady, it has currently been lodged with the Development Assessment Commission by the surveyors. Is that the same thing or a stepping stone on the way to the LTO?

Aaron_C, that's sort if whats being bugging me as I've tried to get my head around it, isn't the existing title sufficient security???

FMS, with regards to your comment regarding the bank's loans officer, he kept saying before he would look at it he wanted a signed contract as it was out of the ordinary... I don't know whether he presumed or what happened...

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No it's not the same. Once subdivision has been approved and lodged you will receive a deposit plan number which will also show on a title search, once this has happened you can settle on a portion of the title.

You don't have ownership of the existing title and your contract is only for a portion of the existing title, therefor the bank can't lodge a mortgage against it unless there is a deposit plan that has been lodged to confirm the new title division.

Be it banker or broker no one will be able to get it to settle until the division has progress further.

Thanks again for everyone's replies, gave me a much needed understanding of the challenges I was facing, hopefully we'll have it sorted by Wednesday.

Another question I'm regards to valuing, the property I'm purchasing is around the 200k mark as part of the subdivision, it will be worth around 60k more once on a separate title. How do I go about realising that value? Get it independently valued prior to settlement? I'm gathering from what I've read around here that the bank's valuers aren't going to be inclined to price jump it post settlement.

If the contract is subject to settlement then the banks valuers should be valuing the property as a separate property. You will need to get the bank to accept the valuation amount if its higher than the contracted amount, bank will usually want to go off the lower... but I have been able to get the higher accepted but only when it's a private sale between known parties

lamby said:

Thanks again for everyone's replies, gave me a much needed understanding of the challenges I was facing, hopefully we'll have it sorted by Wednesday.

Another question I'm regards to valuing, the property I'm purchasing is around the 200k mark as part of the subdivision, it will be worth around 60k more once on a separate title. How do I go about realising that value? Get it independently valued prior to settlement? I'm gathering from what I've read around here that the bank's valuers aren't going to be inclined to price jump it post settlement.

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Generally need to wait 3 month. But in your case you might be able to get access to the instant equity as it's a subdivision/split title this applies for major structural renovations as well.

I'm also looking at buying rural - hopefully I can avoid the same issues that you have had!

Do lenders often apply LVR restrictions for different postcodes? Does anyone know what the restrictions are like for this area? The postcode is 5000.

Lol 5000? Rural you mean Adelaide CBD?

Waldo said:

I'm also looking at buying rural - hopefully I can avoid the same issues that you have had!

Do lenders often apply LVR restrictions for different postcodes? Does anyone know what the restrictions are like for this area? The postcode is 5000.

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Most do, some dont. Most have restrictions on zoning and land size, some dont.

Waldo said:

I'm also looking at buying rural - hopefully I can avoid the same issues that you have had!

Do lenders often apply LVR restrictions for different postcodes? Does anyone know what the restrictions are like for this area? The postcode is 5000.

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I think I just saw a herd of cattle pass my office.

CJay said:

I think I just saw a herd of cattle pass my office.

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Well your not far from the stag

Brady said:

Well your not far from the stag

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Yes, I treasure my members card.

Just a follow up, after three months of trying to make the deal happen I was finally able to do so through a friend who was kind enough to loan me the funds until such time as the title comes through. Settlement was last week with the property being held in trust until such time as the subdivision goes through. Now my next question - should I get a Val done privately prior to undertaking the mortgage through NAB, who have given preapproval of a rural lending facility at 6.3%. As I understand it they are hamstrung by my purchase price of 195k, closest property I can find as a comparable sale was the neighbours - 200arable acres, a dodgy house and one shed for 360k 8 years ago, I'm 110 acres, good house, three sheds including a massive implement workshop that cost 80k plus concrete 12 years ago.

Other than that most properties around here are 500-5000 acres. Thanks in advance.