Has anyone had any dealing with the FSA (Farm Service Agency – a subdivision of the USDA)? They have some interesting farm loan programs and I have an appointment to talk to an agent on Monday. We checked with the Farm Credit Service and their farm loans look nice… til you get to the 15% - 25% down payment! How can anyone afford a farm with that requirement? Or am I living in Narnia somewhere thinking that my small downpayment is going to be enough (5%-ish depending on cost of property and when we actually buy - obviously later means more in the savings fund for the DP but 3 adults and 2 growing kids in a 2 bedroom house is getting REALLY old). I’ve checked with the phenominal bank I work with – less than 10 acres but no agriculture zoning… and the credit union I’ve had an account at since I was 12 – 5 acres max regardless of zoning. Is it really that hard to get financing for a farm?
yes…:mad:
banks hate farmers… .25 acres with 4 BR house all day long…
farmers not so much
[QUOTE=Tamara in TN;4306459]
yes…:mad:
banks hate farmers… .25 acres with 4 BR house all day long…
farmers not so much[/QUOTE]
Not so much. My DH is a mortgage loan VP AND a farmer. Most banks don’t specialize in financing small farms, but can refer a borrower to someone who does.
For more than a decade I’ve had my farm financing with Chattenooga Ag Credit (an agricultural financing co-operative). They are a GSE (“government sponored entity”) and are the descendant of the old Production Credit system. They are actually now part of the Farm Credit System (which used to be limited to land financing, but today does everything).
According to their charter, AgCredit is limited to a maximum of 85% on mortgage loans and a maximum term of 20 years (although that may have changed). Around here, before the recent difficulties, commercial banks were financing up to 110% on farms and vacant land for 30 years. I’m not sure what they are doing now, but this is what was going on in Texas in the '80s and triggered the S&L crisis of those years.
Farm Credit has it’s own limits and I think they are similar to AgCredit. I’ve not really dealt with them before.
Look around (and don’t forget to call your Extension Agent; they will have numbers for all ag financing options in your area).
But be prepared to have a good “downstroke” to get a mortage at a reasonable rate (if at all). Again, a couple of years ago banks would not have blinked at a first and second mortage set up (with the buyer putting zero down). I doubt you’ll find that today.
G.
when you say “farm” do you mean you are earning your income from the property, or just that the property you want to purchase has acreage??
I live in TX and have never had trouble getting “conventional” loans on homes on acreage - but have a ‘regular’ job… also, the mortgage co. wanted a certain ‘land value to home value’ ratio - ie, they did not want to finance an 800sf house on 100 acres…
Are you actually going to be generating farm income? Or just purchasing property to live on, keep the odd horse, maybe have a veggie garden for yourselves etc.?
It is my understanding that to qualify for the FSA Farm Ownership Loan Program that you will need to produce agricultural commodities for sale in such quantities that you are recognized in the community as a farm rather than a rural residence.
These loans can be made for a term of 30 years. You will likely pay a higher rate than conventional mortgage. The USDA guarantees the loan - it is possible that your local Farm Credit will still be involved - I know that is how it works here.
And Guilherme is correct - Farm Credit is limited to an 85% maximum loan-to-value. There are plusses and minuses to being a GSE - and that is one of them.
they might on the acreage…they will not speak to you about:
Fertilizers
Any equipment other than a plain jane tractor and it had better be brand new
Chemicals
Updating facilites
Livestock
Trailers
Fencing
and so on…
Hubby and I have been looking for a new farm for awhile now. We have saved a substantial down payment as we are fully expecting to be required to put down at least 25% and that the terms will be for only 20 years maximum. We’re looking at bare land in the 100-200 acre range and have had extensive talks with several banks and Farm Credit and have prepared our finances according to what we were told. All have told us that if we were looking at a house on smaller acreage it would be comletely different with much smaller down payment and terms up to 30 years.
Putting less than 20% down is a relatively new concept. I had family involved in lending and from what I recall the term creative financing was born in the early '80’s, when FHA loans were running at 13%. That is when you started having the seller take back a second, assuming the seller’s nice low interest loan (which ended quickly once the banks figured out how much money they were losing), or doing all sorts of other “creative” things. Also when ARM’s became a product - lots of people got into trouble with those things and negative amortization. I remember being totally shocked and a little nervous when the “interest-only” loans became common. Reminded me too much of people who could barely afford their ARM and then it reset and the payment killed them - well interest only for five years smelled the same to me.
So, in answer to your question we used Farm Credit and took out a 5-year lower interest loan. I had a property in mind and Wells Fargo wouldn’t touch it - house had to be worth over a certain percentage of the gross price and doublewide? nope. Even though I was pre-approved for the gross price. Which is why people can finance their McMansions - they almost have to build that opulent to get the percentages to paper out. We had history with the old PCA and ag income, had been running the business for a while and filing sched C’s (not F’s, just the way we had done it and our accountant was good with it).
Very smooth and easy, dealing with a live individual, didn’t have to come up with our first born male child (the stories I could tell you about our first house mortgage - talk about bait and switch!) I would use them again anytime, but they are tough with their lending standards and are a lot nicer to FFA, 4H, previous ag income, they want you to demonstrate “intent to farm” as they aren’t really in the business of home loans.
[QUOTE=Tamara in TN;4306566]
they might on the acreage…they will not speak to you about:
Fertilizers
Any equipment other than a plain jane tractor and it had better be brand new
Chemicals
Updating facilites
Livestock
Trailers
Fencing
and so on…[/QUOTE]
Depends on your bank. DH bank financed a tractor, baler, hay mower and wagon for our hay operation. Oh, also a 42x60 barn.
So it can be done. But, you better have a good credit rating and income to back it up. 
[QUOTE=Cincinnati;4306698]
Depends on your bank. DH bank financed a tractor, baler, hay mower and wagon for our hay operation. Oh, also a 42x60 barn.
QUOTE]
sure, plain jane equipment that that they can sell to any joe at a foreclosure auction…they are all about it…go one tiny notch above that and you can forget it…
credit rating or no they were not interested in assuming any risk whatsoever…and it took us 10 years to figure this out after my husband’s 30 years history as a customer…he since moved all 9 accounts to Regions and has no plans to ever ask a bank for anything again…
they told us point blank that they did not bankroll farm ventures…and we are hearing the same things from the hog and cattle producers in the Midwest who cannot get loans to even feed their livestock til the corn crops come in…
so if a person can convince a bank to do something for them for real make it on the farm income alone farming, get all the money you’ll need for the next decade up front;)
Thanks for the replies. Yes, Farm Credit is limited to max of 85% of the loan (no PMI that way but still that 15% down payment is a killer).
What we do depends on how much land we can get. Obviously we’re talking small “hobby” farm if we’re limited to 5 acres. We recently drove by a 68 acre place that would allow us to do hay and some pasture fed cattle (as well as horses). So it all depends. But as of right now… yes… the plan is to continue to maintain my “day job”. Hubby’s too, but unfortunately I can’t use his income to qualify. The Farm Credit guy I talked to was nice… even suggested a local small bank that might be helpful being in the area and dealing with farmers. Guess we’ll see.
Maybe I can provide you with some suggestions about cutting hay. It is the leaf and seed material in the hay that determines its quality. Farmers try to harvest hay at the point when the seed heads are not quite ripe and the leaf is at its maximum when the grass is mowed in the field. The cut material is allowed to dry so that the bulk of the moisture is removed but the leafy material is still robust enough to be picked up from the ground by machinery and processed into storage in bales, stacks or pits. If you want more information, please contact me:luodi@thintlgroup.com
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