Hobby Farm Mortgage Loans

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Hobby Farm Loans

What is a hobby farm loan?

A hobby farm loan caters to those who dream of embracing a more rural lifestyle while maintaining their primary source of income outside the farming realm. This unique financing option enables you to purchase or refinance your very own picturesque property and enjoy agricultural pursuits on a smaller scale, such as raising livestock for personal use or cultivating crops in limited quantities. Hobby farm loans distinguish themselves from conventional mortgages by addressing specific requirements necessary when acquiring land intended for mixed residential and recreational purposes.

These versatile financial products accommodate properties spanning 5 up to 160 acres, provided that around 30% of the total value stems from the dwelling itself.

While these non-traditional mortgage offerings have some similarities with the mainstream counterparts, such as needing credit scores of at least 680 and a down payment of 20%, it is important to look closely at the different eligibility criteria prior to beginning the journey towards owning a lovely retreat far away from city life.

Why is it different from other loans or mortgages?

A hobby farm loan differs from other mortgages and loans in several significant ways. Firstly, it primarily targets properties where the land comprises over 30% of the total property value, which goes beyond conventional loan guidelines. This flexibility grants borrowers greater opportunities to acquire rural or semi-rural lands with a less restrictive evaluation process.

Another unique aspect is its focus on financing hobby farms rather than commercial ones. This means that while you may generate some revenue through agricultural activities like selling products or raising livestock, these earnings should not be your primary income source. Additionally, there are specific acreage limits for qualifying properties in this mortgage category, ranging between 5 and 160 acres, which cater specifically to hobby farm enthusiasts who don’t intend to engage in large-scale farming operations.

Unlike traditional lending options, a hobby farm loan mandates at least a solid credit score of 680. This is an increase in the mid-to-high-600s, otherwise required for other loans. Furthermore, providing at least a sizable deposit of generally about one-fifth of the principal cost is also necessary. This is referred to as having ‘skin’ within base investment policy terms.

Procuring experienced appraisers might pose certain challenges due to the diverse nature of comparing and evaluating smaller estates versus more extensive spread real estate assets.

Specialists are needed to accurately assess the value of the assets. Provisions must be made to ensure that predetermined sufficient security covenants are met and sustained throughout the duration of the commitment. Any deviations from the legal, contractual obligations of the arrangement are not allowed.

This supports the homeownership goals and fulfills the dreams and aspirations of the individual or group beneficiaries, indeed a noteworthy distinction setting it apart from other alternative offerings presented in the marketplace.

How hobby farm home mortgage loans can help farmers?

There can be many definitions for a hobby farm home loan or hobby farm mortgage loan. In a nutshell, a hobby farm is a small-scale farm that is primarily used for pleasure rather than that of a business venture. The owner of a hobby farm will typically have a main source of income. The revenue is usually from an off-farm job, retirement income, a pension, or even a trust fund. Regardless of income source, the idea is that the farm does not need to make money, it can be those who use it as a hobby, hence the term, “Hobby farm”.

So if you do not have a great quarter or “session” it can disappointment, rather than a financial loss or business loss.

At times, some hobby farmers will not have the money to invest in their new farming ventures, or they might have little capital or operating budget. Unlike homesteaders, hobby farmers are not typically motivated by having ultimate goes of being self-sufficient.

Some farmers are content to continue their day-to-day jobs and only farm on the weekends. Additionally, there are farmers who invest their retirement income to invest in farm animals they would like to keep on their farm. Farms can add value to a your home, so retain that value there could be minimal upkeep plan if needed.

There can also be overlap with homesteaders when it comes to hobby farming, but its a pretty broad scope if you look at it as a whole. There are also hobby farmers who choose to maintain their farm with a part-time job so they can spend a majority of their time farming. Farmers can also keep aside a small budget for farm implement investments, and other investments in animals and infrastructure. It all depends on the immediate goals and focuses of the farmer and what they want to achieve in the short and long term. Our hobby farm home and mortgage loans are created to help farmers achieve their goals and keep them heading in the direction they see fit.

There are times where hobby farmers are not too far from a homesteader, and the choice to run a hobby farm can be great because hobby farms have wiggle room due to the fact there is more wiggle room when its comes to the rules and what constitutes as a farm or not.

How can I get a loan for a hobby farm?

To get started on obtaining financing for your cherished pursuit in farming life, you need to identify potential lenders. Research online platforms to find financial options tailored to meet specific requirements associated with hobby farming loans available across all fifty states. Doing this research can help you hone in on the right lenders for you.

Once pinpointed prospective providers, prepare yourself for the loan application process by gathering essential documents like pay stubs or tax returns to verify your income and validate your credit score (preferably above 620) to indicate financial reliability.

If you’re looking to finance a hobby farm, United Farm Mortgage has the best solutions. Our experts have experience in providing loans for many types of farms, including hobby and small-scale operations. We can help structure short or long-term financing that meets your needs and provide flexible repayment options tailored to fit into your budget.

With competitive interest rates and no pre-payment penalties, we make it easy for borrowers to access the funds they need without stressing about cash flow issues further down the road. Reach out today with any questions related to our loan offerings!

Technical requirements for a hobby farm loan

In order to qualify for a hobby farm loan, there are certain technical requirements you must meet.

  • First and foremost, the property in question should be primarily used for personal enjoyment or supplementary income rather than as your main source of earnings. When applying for this type of financing, be prepared to share documentation verifying your primary income from sources like pay stubs or tax returns.
  • Creditworthiness is crucial. Therefore maintaining a credit score over 620 will increase your chances of approval. Additionally, make sure that no more than 42% of your total monthly gross income goes towards servicing debt payments, also known as the debt-to-income ratio (DTI).

Keep in mind that if a loan application is approved, certain purposes, like refinancing an existing mortgage, could require up to three years of financial history from the lending institutions involved. This may not always be the case, as exceptions may be made depending on specific situations like retirement funds amassed prior to applying for such loans.

Is hobby farm financing right for me?

If you are looking for a way to own land and enjoy the benefits of country living without having to be a working farmer, hobby farm financing may be an option for you. A hobby farm loan can help you purchase a property that is up to 160 acres in size, with approximately 30% of the value coming from the home itself. This type of loan does require a 20% down payment, as well as a minimum credit score, in order to qualify.

Hobby farm financing can be a great option for those looking to enjoy the benefits of country living without having to become a full-time farmer. The property cannot be used as a primary source of income, but you can still produce some income from the land; for example, housing a few show ponies or maintaining a vegetable garden to sell at a farm stand.

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Launching A Hobby Farm With Our Hobby Farm Home Loan.

Here is some good information to notes when you plan to launch a hobby farm or plan to apply for a hobby farm home loan. The U.S. Internal Revenue Service will disqualify hobby farms from receiving tax breaks designated to small-farm owners. Some farmers and residents claim hobby farms as tax shelters in order to avoid paying taxes on horse shelters and ranches that they maintain and use for personal pleasure.

Tax allowances for hobby farms can be explained in Section 183 of the U.S. tax code, but small farms that are in business should be have documentation and be prepped and ready to prove business operations and income. This is so the farmer and/or resident doesnt miss out on being designated as a hobby farm and miss out on the tax benefits.

Residents and farmers choose United Farm Mortgage because we understand the benefits and the complications. There can be many finance challenges on these types of properties, which can balance on the thin line between residential home and commercial. Take Fannie Mae and Freddie Mac for example, secondary market residential investors. These investors will generally reject rural properties that have agricultural characteristics.

This is why brokers who are interested in obtaining loans on these specific property types will generally need to seek out lenders that offer affordable, and have 15 or 30-year fixed-rate solutions. Moreover, in order to successfully underwrite these loans, the originators will need to request documentation from those who apply apply for hobby farm loans. The document must be relative to their business in order to account as self-employed, hobby-farm income.

What Should Documentation Generally Include for Hobby Farm Mortgage Loans? Detailed projected income, expense reports and if applicable – your business plans. If you need help give us a call and let’s talk about it!

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