Financing the farm

Posted on January 8, 2013 by Julia at Home on 129 Acres

It’s been a year since we bought the farm, and this month I’m revisiting some of our experiences from the purchase.

When we last left our heroes, they were standing in the snow next to a sold sign smiling giddily because they had just bought a farm.

In reality, they had a conditional sales agreement on a farm. In order to actually close the deal, they had to pay for the farm, which meant a mortgage.

Finding a lender for the farm was a bit like finding the perfect property–frustrating, trying, drawn out, complicated… although [spoiler alert] ultimately successful.

Matt and I had gone to our bank and been pre-approved before we ever started looking at farms. However, now that we had found our farm, we had to convert our pre-approval into an actual approval. And according to our conditional offer, we had eight days to firm up financing.

What we discovered was that in the case of a rural property a pre-approval is mostly hypothetical. Turning it into reality is another matter entirely.

Banks, and really most lenders, like cookie cutter. They have forms and check boxes and mathematical formulas. A 129-acre farm with a modest house, a massive barn, a semi-rickety driveshed, a bunch of hay fields and a few acres of forest doesn’t fit their molds.

Posted interest rates don’t apply. Nor do minimum down payments. Hoops and hurdles are placed in your path. Acrobatics–and lots and lots of paperwork–are required.

Signed offer in hand, we headed to our bank. To cover all of our bases, we also visited a credit union where Matt’s Dad is a member and connected with a mortgage broker recommended by our real estate agent.

Here’s what our options were:

The bank: Throughout our dealings with our bank, we felt like they were trying to make things as difficult as possible so that Matt and I would just go away. Even though we weren’t planning on working the farm, they wouldn’t give us a residential mortgage. Everything had to go through their small business line of products. And the interest rate was a full percent higher than what other residential customers were getting.
The credit union: Service was great, and we really felt like our staff person was working with us to make the mortgage happen. They would do a residential mortgage, but the interest rate wasn’t any better than at the bank.
The mortgage broker: For the most part the broker struck out. Even though Matt and I were a good credit risk and the farm had no big issues, lenders didn’t want to step outside of their little boxes. He did manage to find one major bank willing to give us a residential mortgage. The snag was that the bank saw the “needs TLC” description in the real estate listing and wanted to hold back a portion of our loan conditional on us installing a new heating system and new roof within 120 days of taking possession.

So there was no clear front runner among our three options.

The biggest hurdle in securing financing was that every single lender wanted an appraisal. A real live person had to visit the farm, walk around and say how much it was worth. Except he’d only look at the house plus 5 acres. Maybe 10 if we were lucky.

A big part of the appraisal was looking online for comparable properties, which meant that since the appraiser was only evaluating 5-10 acres, he was looking for anything in the 1 and 15 acre range. Now maybe I place more value on land than other people do, but somehow in my mind 5 acres doesn’t compare to 129 acres.

It was important to us that the whole property be valued properly. All of the lenders would only give us a mortgage for up to 80% of the appraised amount, so if the appraisal came back too low, we could be in the situation where we might not be able to afford the farm.

Aside: The 80% loan speaks to my earlier comment about minimum down payments not applying to farm purchases. While in Canada people are able to purchase houses with as little as 5% down, if you buy a farm, your lender is going to want 20% minimum.

Anyways, the other huge frustration with the whole appraisal process is that the lender ordered it, required us to do it, kept the report and wouldn’t show us a copy, but required us to pay for it. I managed to speak with the appraiser our bank wanted to send out to the property and when I asked him how much the appraisal was going to cost he refused to tell me!

The appraisal ended up being the tipping point for us.

I managed to get the credit union to agree to appraise the full 129 acres–at a cost to us of $762.75. Given the urgent deadline of firming up our financing within a week, we gave their appraiser the green light to head out to the property.

The day our conditions expired, the appraiser’s report showed up at the credit union. Even though we hadn’t signed the final paperwork, we went ahead and waived the conditions on our offer. And by the way, the appraisal came out more than $60,000 higher than we had paid for the farm. Phew!

The day after we waived the conditions, a bank contacted by our mortgage broker came forward with a firm commitment for a residential mortgage at a half percent less than the credit union was offering.

Though he had no obligation to do so, our broker gave us the paperwork from the bank, so that we were able to take it to the credit union and use it to negotiate a better interest rate. The great service from our broker and our mortgage specialist at the credit union made what was an extremely frustrating process slightly less painful.

Some lessons learned for securing a mortgage for a rural property:

Give yourself as much time as you can to finalize your financing. We had had lots of conversations with the bank throughout our property search, well before we ever placed our offer on the farm. We had some idea of what would be required to secure the mortgage. However, the financing was much more complicated than we could have ever dreamed. We squeaked in just under the deadline to waive our conditions.
Have all of your financial information documented in detail and carry it with you at all times–extra hard copies as well as electronic files you can email. All of the lenders required three years of tax statements for both of us. In addition, we each supplied pay stubs and personal statements detailing our assets and income. Having all of our numbers on hand ensured we didn’t add any extra delays to the process.
Consider working with a mortgage broker. Our broker’s contacts and experience were invaluable. He was a fabulous advocate for us and it was very helpful to have someone who was willing to explain the intricacies of mortgage conditions and vet any documents we received.
Shop around. Don’t settle for the first offer you receive and consider alternatives to traditional banks. Even when you receive an offer, go back to the lender and ask for exactly what you want. You might not get everything, but you may be able to do a little better. Ask lots of questions and make sure you understand exactly what you’re getting.
Be prepared for some extra expenses just because you want a rural property: you’ll likely face a bigger down payment, higher interest rate and appraisal fees.

For Matt and me, the extra expenses were worth it because we got the farm of our dreams. I can’t say the frustration was necessary, but we made it through.

Home Goals 2013

Posted on January 6, 2013 by Julia at Home on 129 Acres

I’ve never been big on new year’s resolutions, but there is a list that’s been building in my head for some time now. It is the Home Goals 2013 list.

After having most of last year sucked up by the basement-renovation-that-never-ends, my plan for this year is to avoid any other massive all-consuming projects. However, as you can probably imagine, there are a few to-dos I’d like to accomplish.

1. Landscaping. This is going to be the big one this year. As I’ve noted, we didn’t do any landscaping in 2012, so there is a huge need to get on top of the situation outside. However, with 129 acres of property, we will have to prioritize where we spend our energy.

Reestablish the flowerbeds around the house. Some will have to be rebuilt. Some will be extended. Everything will have to be weeded.
Level old fire pits at the top of the driveway and plant grass seed.
Build new fire pit close to the pond.
Tidy the east shore of the pond. The brush grew so thick over the past year that I can only access about ten feet of shoreline. Chainsaws and perhaps a bush hog will be required.
Put in a garden on the turnaround. This pile of dirt and rubble and weeds is approximately the size of a suburban backyard. A big lush flowerbed sounds like a better plan than mowing any additional grass.

I’m going with inspirational photos for this post, rather than reality. A lush garden with a brick path winding through it would be perfect for the turnaround. Source.

2. Painting.

Living room
Dining room
Kitchen
Main floor hallway

3. Living room fireplace. A wood burning fireplace was high on my wish list when we bought the house. We have one, but it needs a little work to make it exactly what I want.

Replace the woodstove-esque insert with an open hearth one.
Reface with fieldstone.
Put up a new rustic wood mantle.

Design by Burlington Architect Smith & Vansant Architects PC. Source.

4. Laundry room. The final section of the basement needs to be brought up to our new and improved standard.

Fix the leaky foundation wall.
Paint.
DIY a fun light fixture.
Build a drying rack.

A few other things will sneak in there, I’m sure, but here’s hoping 2013 brings slightly more time for enjoying rather than always working the farm.

How do you feel about resolutions? Do you have any home goals for 2013? The nester, the champion of annual home goals, published her list last week. It’s a bit more philosophical than mine. I think I’m still at the stage of working on the underlying form for our house and property. Once I have that established, I’ll build in a bit more philosophy.

One year ago

Posted on January 3, 2013 by Julia at Home on 129 Acres

A year ago today we saw the farm for the first time.

We’d been searching for our dream rural property for nearly a year and a half. After a very frustrating fall with nothing new coming on market, it had been more than a month since we’d actually visited a property.

Then on Jan. 2 sitting in the living room in our little house in the city, Matt hopped on MLS.

A new farm had been listed.

It was in our preferred area. It wasn’t the type of house we usually looked at, but it had a barn and was a good acreage. It was also over our price range. Matt called our agent, and he made an appointment for us to see it the next day.

Our viewing at the farm was different than the viewings when we first started. The rose coloured glasses had come off.

Which was unfortunate, because we really could have used them the first time we stepped into the house.

The good news is the garbage bags turned out to not actually be full of garbage. The bad news was that we ended up buying everything you see when we bought the farm.

No one had lived in the house for a few months, but it was far from empty. Previous owners had left stuff and lots of it. Beyond all of the detritus it was obvious that the house met one of my major criteria. It had potential. Buckets of it.

We toured the barn and fell in love with the historic post and beam construction. We peaked into the driveshed. And that was about all we saw of the 129 acres… because I was so freezing cold.

It was an absolutely frigid day, and standing outside chatting with our agent all I wanted to do was get in the car and turn on the heat. Our agent’s final words as we turned on the ignition were, “I think you could get it for about $100,000 less [than they’re asking].”

And that became the topic of the afternoon. A hundred thousand less than list put it into our price range, but still at the top.

During our frustrating fall we’d had conversations about how we were likely going to have to compromise on something: location, property (meaning acreage, outbuildings, ponds and forests) or price. If we chose to buy this property–which had everything we wanted and was close to where we grew up and where our families still lived–it was clear that our compromise point was going to be the budget.

Matt was ready to go for it. The farm ticked all our boxes… except for price. That night was a sleepless one for me.

The morning of Jan. 4, we called our agent and to his surprise told him to put together an offer. At his office later that day we found out that the buyers had already received other offers. Bad news, we were about to enter our third bidding war. Good news, the buyers were waiting for our offer.

We signed the offer and crossed our fingers. Our agent said he expected we’d hear something back that evening. That night we sat up until midnight, but the phone was silent.

When we finally headed to bed, I slept with no trouble. We’d made our decision and it felt right. We’d done all we could, and it was up to other people now.

First thing the next morning, the phone finally rang. It was our agent. Our offer had been accepted.

Finally farm owners.

As I hung up the phone and told Matt the good news, I burst into tears–happy tears. After a year and a half of searching, we had found our perfect place and it felt exactly right.

Now a year later having owned the farm for ten months, it feels even more right.