March 5th, 2018
Tips for buying bulk land parcels, building lots and farms
When you set out to purchase these types of properties many of the conventional financing options are not available, also there are other considerations as well as conditions you may want to include in a promise to purchase.
Vacant building lots and land parcels
Lenders usually DO NOT offer mortgages on vacant land parcels or building lots. If you are intending to build immediately, you may be able to role the purchase of the land into a construction mortgage but that comes with deadlines and conditions. You may be able to obtain other forms of financing like a personal loan or line of credit (if you qualify) but generally you will need to have a significant portion in cash, other equity or sufficient income to guarantee a loan.
Rural bulk land and farms with homes
When a mortgage is needed to buy a home with large piece of land, over 10 acres or more, note that lenders generally will only finance a small portion of the land (usually the equivalent value of a normal sized residential building lot in the area) plus the value of the principal residence and garage. The remaining portion of the land value as well as the value for any outbuildings (barns, workshops etc) would be added to the down payment amount therefore more cash is required, generally at least 25% of the total value or more.
For borrowers wanting to purchase a farm for an agricultural purpose or to expand an existing farm, a bank, lender or the Canadian Farm Credit Corporation may issue a farm mortgage under the Canadian Agricultural Loans Act. However note that conditions will apply such as previous experience, a solid business plan and/or an education in farming.
Note also there are stricter laws for agricultural zoned land and farms in regards to buildings, usage and acquisition governed by the Commission de protection du territoire agricole du Québec.
Vendor or private financing
On some occasions a developer or private owner may offer financing directly to a potential buyer but this is not very common. Make sure you read and FULLY understand any agreement you sign and shop around and look for alternatives before you agree to any unusual terms or conditions. You may also find a private lender (sometimes available through mortgage brokers) willing to lend you money but often because of a higher risk a higher interest rate is requisite.
Percolation and soil tests
When purchasing rural land without possible connections to municipal or cooperative water and/or septic systems, it is highly advisable that you get a qualified engineer to do at least a preliminary soil study to ensure that a suitable building site, septic system and well can be located on the lot – this should be a condition written into an offer. This test is generally the responsibility of the buyer and at their cost although some building lots may already have had a preliminary study available.
In some cases you could also be required to provide other tests (e.g. soil stability test, environmental studies...) in order to get a building permit. Always make sure to check, the cost can be quite high in certain cases and some types of tests may have to be updated after only a short period of time.
Zoning regulations and laws
Verify with municipal or city authorities to ensure that you can obtain permits to build what you are planning and there is no problem with your intended use. There are municipal, provincial and federal zoning, planning and building regulations that must be respected. Even if some neighbouring properties have what you need, do not assume you can do the same. Bylaws and regulations change over time and older properties may have acquired rights (also known as 'grandfathered rights') to the footprint and location of the home or outbuildings or acquired rights of certain types of usage.
Also some developers add protective covenants, building restrictions or usage regulations into the deed, depending on what the developer wants to achieve. Make sure you get a copy and read the rules very carefully, they may impact on your planned utilization of the property. Most of these types of regulations are designed to ensure a quality neighbourhood and often give the immediate neighbours, developer or association the ability to ensure compliance.
Survey or Certificate of Location
A survey or certificate of location may not be provided by the vendor nor needed in order to purchase land but make sure you are well aware of the boundaries especially if there are any buildings or lot improvements installed (driveways, wells, septic...). Some lots have official survey markers or pins already installed but they are not mandatory in order to buy or sell. If in any doubt you may also hire a surveyor to check and/or mark out the boundaries as a condition of sale. This is even more important for smaller lots or those in difficult terrain where building sites may already be naturally restricted by topography, waterways or nearby neighbours.
If the land is bordered and accessed by municipal or provincially maintained roadways there is normally no problems of accessibility however many rural properties use shared access lanes or private roads. The maintenance cost (snowplowing, grading, tree clearing...) is then born by the property owners themselves or a neighbourhood association. Make sure you know the costs and responsibilities attached, there can even be insurance liability issues should anyone get hurt using a roadway which passes over your property.
Your Notary will do a title search and ensure that you have some kind of servitude or legal right to use any existing access road but it is important to be proactive on this issue and find out for yourself.
If a property is on a private road (especially long, narrow, difficult or seasonal) you should also check with your insurance company to make sure you can be fully covered, some insurance companies may require further documentation or proof that emergency vehicles can access the property year-round prior to approving a policy.
Electricity, Phone and Internet services
Make sure that the property has all these services (if you need and want them – and most often your lender will require at least basic electrical service). That may seem obvious to some but just because there is an electric pole on the land it does not mean you have a 'land line' phone or internet service. There also is a charge for installing and connecting electricity and phone services from the nearest pole to the residence. If you have a long driveway or access road this cost can be quite significant so check beforehand.
Although most rural areas now have some kind of high-speed internet service available there may be extra cost for service and equipment. In some hilly rural areas even cell phone reception can be quite limited you may have a restricted choice of cell phone companies or you may have to switch carriers or install a cellular signal booster.