Rural properties: Where are the banks?




How do you finance the purchase of rural or agricultural properties?  Here’s a horror story about the insensitivity of our financial institutions.

The buyer and his partner decide they want to move from downtown Toronto to develop a greenhouse, specialty plant business in the Niagara region.  The buyer will retain his high-paying job for the foreseeable future and commute to his west-end Toronto job while his partner, a horticulturist, builds the new business. The buyer has an excellent credit rating, cash in the bank and other investments, and has worked at the same company for more than 15 years.

He proceeds to have his house appraised by a local Realtor and is told it should list for $329,000, which would allow him to put $100,000 down on his new purchase. After several months of scouring the Niagara/Norfolk/Simcoe region looking at different farm properties, he finally settles on a 46 acre farm/rural property with a traditional 2,500 sq. ft., two-storey, red-brick home, three barns and other smaller outbuildings, listed at $349,000.  He makes an offer on the property and arrives at a purchase price of $335,000.

He puts his Toronto home on the market and it sells for $320,000.  However, the new property does not have a greenhouse, so he would require an additional $40,000 on his new mortgage to build one. Therefore the total of the new mortgage would end up at $270,000. 

Having purchased his original Toronto property through a mortgage broker, Mortgage Intelligence, he went back to them to arrange a mortgage on his new purchase.  Mortgage Intelligence proceeded to check with his existing mortgage holder and was advised that they would not mortgage a farm/rural property, period.  The mortgage broker succeeded in acquiring a new mortgage with the T-D Bank (who just happened to be the bank of choice for the buyers’ chequing, savings, and investment accounts with some 20 years of history).  They agreed to a new mortgage of $270,000, subject to approval by CMHC. This was finalized in May of 2003 with the closing scheduled for August 15.

Then the wheels fell off.

On August 5, following the long week-end, the buyer received a “panic” call from the mortgage broker stating that a) TD Bank had “neglected” to send the file to CMHC until the end of July and b) CMHC had the property appraised at $220,000 and would hold back 10 per cent as a “high risk” mortgage, advancing only $198,000.

The appraisal “guidelines” would consider only five of the 46 acres and no barns or outbuildings in arriving at a “value”.  Nor would they consider that the buyer was putting $100,000 down and was hardly a “high risk” mortgage.

Never mind the $40,000 for a greenhouse, the buyer was now short  $37,000 to even close the deal on the house. Plus, if he accepted the deal, a $5,000 to $6,000 additional fee from CMHC for insurance would be tacked on his mortgage. And, the interest rate would be higher than originally promised.

More panic calls to the TD Bank mortgage department by the buyer.  The bank had absolutely no remorse, saying, “sorry about that” and, essentially, “Solve the problem yourself”.  There was absolutely no time left to look for a new mortgage from someone else.

So, here he was, less than 10 days before closing, having to find an additional $37,000 or walk from the deal and risk being sued by the seller of the farm property.  Just a little bit of stress.

The mortgage broker interceded with CMHC and arranged to have the hold-back reduced to five per cent, which meant they would advance $211,000.  The buyer used his lines of credit and cash on hand to come up with the balance to successfully close the deal, something that most buyers would be totally unable to do.

So now the questions:

1. If this buyer — with an extremely sound credit history; a good, high paying job; and a $100,000 down payment —  is considered a “high risk” mortgage, who then can buy a rural/farm property requiring a mortgage?

2. Why would CMHC be involved in this purchase at all, when the buyer has roughly one-third of the down payment?

3. Would TD’s mortgage centre not be aware of the appraisal guidelines, both their own and CMHC’s, prior to approving the $270,000 mortgage?

4. Why is it that one branch of the federal government, CMHC, attaches no value to farmland and yet another branch of the same federal government, Farm Credit Corporation, is perfectly willing to consider land as an asset?

5. Are all agricultural property buyers in Ontario/Canada forced to find financing through the federal Farm Credit Corporation?

6. The properties in the Niagara/Simcoe area are high-production food suppliers, mostly to the Toronto area.  Is that not of importance in this country?

7. The barns and outbuildings have a value of at least $150,000 and yet the TD Bank/CMHC says they have absolutely no value.  What’s wrong with this picture?

I don’t have the answers. I wonder who does?


Jim Hazzard is associate broker with Century 21 B. J. Roth Realty in Barrie, Ontario.


  1. We ran into the same problem type on our hobby farm purchase. Excellent credit history and we were putting 25% down. TD had the property assessed and the house + 5 acres without the outbuidings left us short $35000. Our real estate agent was fantastic and she recommended DUCA Credit Union. They took the whole value of the property into account and we have had our mortgage with them since. This is an endemic problem with rural property purchases unfortunately.

  2. Jim, any mortgage broker who knows his job, should know that all lenders and insurers will consider house + 5 acres only. Having said that, It is always possible to go with the option of a 1st and a 2nd mortgage. you can avoid paying a premium to CMHC if the LTV is under 70%. i am a broker with Centum with extensive experience in vacant land ICI and cottage financing as well as farms.


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