Access to credit is a struggle for farmers and ranchers in the United States. The issue with acquiring farm land loans mainly affects aspiring produce farmers who need money to launch their careers in agriculture, farmers who want to improve and expand their operations, farmers who need assistance with land tenure and save it for future generations, and other farm-related reasons.
Luckily, there are many types of direct farm ownership loans from farm loan creditors and government programs that can help farm owners with their financial needs—even if they don’t have a previous credit history.
What is a Direct Farm Land Loan?
Direct farm ownership loans offer 70% financing for farmers and ranchers, which helps them:
- Buy a farm or ranch
- Construct and improve farm dwellings, service buildings, and other facilities that would improve farm operations
- Expand an existing farm or ranch
- Purchase easements
- Make a down payment on farm or ranch property
3 Types of Direct Farm Land Loans
There are 3 types of direct farm ownership loans every farmer should know about before applying for one: regular loans, joint financing loans, and loans for a down payment on a farm or ranch. Some lenders even offer micro loans for constructing small buildings, repairing farm dwellings, and other emergency funding needs.
Regular Farm Land Loan
A regular direct loan is a financial loan that offers 70% financing to farmers and ranchers, which helps them purchase a farm or ranch or construct farm dwellings and facilities to improve operations. However, the eligibility to apply for a regular farm ownership loan requires many qualifications. In addition, because regular loans offer the full amount, the monthly amortization is higher than joint and down payment loans, depending on the amount.
Direct Farm Ownership Joint Financing Loan
The 2nd loan type is the joint financing loan, also known as the participation loan. This loan provides more farmers and ranchers with access to up to 70% financing for the value of a property they are looking to purchase. The balance of loan funds can be provided by a different lender, a state program, or the seller.
Direct Farm Ownership Down Payment Loan
Some sellers offer financing or a monthly mortgage on land they sell if the buyer can make a down payment. If a farmer does not have access to funds for a down payment, they can apply for a down payment loan. However, this loan is only available to eligible beginning farmers and ranchers, minorities, and women applicants.
Eligible beginning farmers do not have to be minorities or women, and vice-versa. Women and minorities don’t have to be beginning farmers to be eligible to be granted this type of loan.
If you are interested in applying for a down payment loan, you may be required to pay at least 5% of the price of the ranch or farm you are looking to purchase. In addition, you cannot own more than 30% of the average size farm at the time of application. However, you can exceed 30% ownership once the loan has been closed.
The down payment lender will not cover the balance of the land you want to purchase. Instead, you can apply for a separate loan or financing plan from a commercial, cooperative, or private lender. The seller may also grant you a financing plan depending on your deal.
Eligibility for Direct Farm Ownership Loans
To be able to apply and get granted a farm ownership loan, you need to meet these qualifications:
- You must have at least 3 years of experience in farm management within ten years of the loan application date. However, you can substitute 1 of those three years with a post-secondary education degree in agricultural fields of study, other management experience, or management experience serving in the military.
- Your farm enterprise must be eligible, and you cannot use the loan for anything other than a farm or a ranch, such as exotic pet birds, tropical fish, or horses and dogs used for racing, pets, and shows.
- You must submit eligibility requirements, such as having the legal ability to accept full responsibility for the loan obligations, having an acceptable credit history, and being a legal resident of the United States. In addition, you must not have federal or state convictions related to the planting and cultivation of illegal substances.
Tips for Acquiring a Direct Farm Ownership Loan
If it is your first time applying for a farm loan or meeting with a loan officer, here are some tips that might help you:
- Identify your goals first, and be clear and concise when explaining your operation.
- Make sure your records are organized to quickly pull a specific file when the loan officer asks for it.
- Bring your tax returns for the last three years.
How high are the interest rates on these loans?
Interest rates are not charged until the loan is almost closed, and they are usually low compared to other types of loans, such as car financing, credit cards, etc.
What are the repayment terms for direct farm ownership loans?
The maximum repayment period for direct farm ownership and joint financing loans is 30 years.
References:
- https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/farm-ownership-loans/index
- https://unitedfarmmortgage.com/how-and-when-to-change-your-farm-credit-lender
- https://sustainableagriculture.net/publications/grassrootsguide/farming-opportunities/farm-ownership-operating-loans