Curious --- where have those of you buying farmettes found the best financing

[fjordmom]

Just planning ahead a bit as DH and I start to enter retirement. I still have 2 horses, but know they will be my last. When I loose the golden oldie (currently 24 yr old) his BB (a lease) will go back to his mom. Although we intend to stay on the farm even without horses, at some point in our aging we will likely have to make a decision to down size.

When we bought this 10 acre property in the early 2000s the mortgage meltdown had not fully happened yet. We paid cash for the land and funded the barn out of our own resources and lots of sweat equity. Next year added attached indoor arena with partial financing using a personal loan from the local community bank. When we built the house we were able to get a building loan, roll in the value of the arena loan balance, and end up with a conventional 30 year fixed mortgage.

Fast forward a few years, post recession. Mortgage rates had dropped a percent to a percent and a half. Time to consider a refinance. Even with top notch credit and substantial equity, we were for some mysterious reason not able to get anywhere. Loan officer just would not return our calls.

Finally I asked the bank VP who I had an excellent long term (20+ year personal and business history) relationship with. She checked into it for me and less than 24 hours later I had a call from the loan officer. Turns out with all the post recession regulatory changes, Freddie & Fannie were no longer “financing farms” so bank could not resell the loan on the secondary market as they normally do. Ten acre horse property was now considered a farm even if not run commercially. We would have to go to the local farm service agency for $$$. Loan officer just had not wanted to tell us as he knew the interest would be higher than our current rate.

So we sat on it for a while. Current rate was affordable, but we do like to do better when it makes rational financial sense. About a year later, bank was offering very low rate home equity loans (2+ %, no fees). Normally I would never use a home equity loan, but this was half our current rate and the property was on the line with the conventional mortgage anyhow. Closed in just a few days. Barely any questions asked.

So when we eventually do go to sell the place, will the financing challenge severely reduce the buyer pool? Where will they find $$$, if not in their own pocket. Yes, it will take substantial $$$. Property is 10 acres (all fenced grass pasture, except what is taken up by buildings), 3-BR, 2+ bathes, roughly 2000 sq ft. home w/geothermal, 2 car attached garage. 7-stall barn w/ heated feed & tack room. In the middle of vacation paradise near national park, rated summer horse show, water sports, very nice mid-size city w/ lots of entertainment amenities and top notch medical care, good schools, community college, and much more. Yes, it is our dream place and NOT for sale now. We plan to stay until we no longer can due to age and upkeep needs. We just want to think about this a bit as we continue our post retirement planning.

Sorry this got long, but where do those of you buying horse property today find your funds/financing? Those of you currently selling, have you had difficulty due to limited financing options for the buyers?

TIA for sharing info.

[IronwoodFarm]

Yes, your buyer pool will be more restricted because they will have to go to the specialty market. Farm Credit is fabulous for financing but requires a down payment of a reasonable size and charges higher interest rates than residential mortgages. They also pay dividends. When listing use an agent familiar with farm financing. The good news is that your buyers should be super qualified unlike a number of the buyers on the residential market.

[clanter]

have you look at Jumbo Loans? they can used to refinance acreage up to 40

you may use a jumbo loan for a home on up to 40 acres of land. However, there are certain requirements you should be aware of if you’re getting a property with more than 20 acres of land.

https://www.quickenloans.com/learn/jumbo-loans-mean-big-new-improvements

[cutter99]

Our last two farms have been financed through local banks, in two different states. We have had no issues getting very competitive interest rates, although we had an issue at one point getting a construction loan. That problem was due to the bank’s incompetence in who they used as an appraiser.

A good realtor will know where to get financing for a potential buyer. Farm Credit and other ag banks are also great resources. Heck, in Pennsylvania, there is even a bank that was started by the Amish to meet the needs of those trying to finance farm properties. They have been VERY successful, and expanded to financing non-Amish a few years back.

[spacehorse]

I would say to keep at it with every bank or broker you can find. Eventually you will come across one that will work with you. It is a frustrating process…we just went through a refi for our 63 acres and it is DEFINITELY a farm, but is not a commercial operation, we make nothing from it (my dad does the crop farming). We eventually found a broker that would work with us with the acreage.

Strange that you say about Fannie and Freddie, because our loan just got sold/transferred and we got a letter from them saying that our loan is conventional. I have no idea how this happened, but I’m not questioning it!

Our local Ag office was up over 6% when we started the process early this summer (it took ALL SUMMER). Rates have dropped since of course, but we got a lock on 4%.

[Guilherme]

Begin by contacting your local County Extension Agent and your local Farm Service office. They will direct you to the local contact for the Farm Credit system. If you are lucky there will also be a farm financing co-operative group, the legacy of the old Production Credit system. We found out 25 years about about the local co-op in our are (River Valley Ag Credit) and have NEVER looked back. They are VERY professional and very easy to work with. Since we are shareholders in River Valley we get a substantial check twice a year in the form of a “patronage refund,” the return of profits from the co-op’s operation. The stated rates are higher than competing finance sources but the actual rate is lower after the refunds.

There are also government guaranteed loan programs through Farm Service but I know of at least one person who was VERY badly treated by this system and would not recommend it. I’d walk carefully around this alternative.

Any institution making “conforming loans” (this would include most commercial banks and private mortgage companies like Quicken Loans) will not finance land purchases beyond five acres and cannot consider the value of anything beyond the primary residence and one outbuilding. These loans are made and then packaged and sold as investment securities. As such, in the post-2008 world, they are very highly regulated. Very few commercial banks will loan money on bare land under any circumstances.

Credit unions are a source to consider. There are at least five, large CU’s in our area and three will make “farm” loans. They will also lend money for tractors and other equipment. The other two will not. Farm loan rates are slightly higher than tract house rates but not unreasonably so.

You really need to start with the folks in the first paragraph. Occasionally real estate brokers will have financing information but they often get commissions for steering business one way or another and are not to be fully trusted to give you advice that is best for YOU.

Good luck in your project.

G.

[LovesHorses]

I am a Realtor in Seattle. We have no problems getting conventional financing on these places since there is a home. Buyer just needs to qualify with their day job…not using income coming from the farm business. Only risk is the appraiser might not understand the value of the barn, arena, etc. Make sure you use an equestrian agent that can help justify the value.

[mmeqcenter]

@IronwoodFarm

Yes, your buyer pool will be more restricted because they will have to go to the specialty market. Farm Credit is fabulous for financing but requires a down payment of a reasonable size and charges higher interest rates than residential mortgages. They also pay dividends. When listing use an agent familiar with farm financing. The good news is that your buyers should be super qualified unlike a number of the buyers on the residential market.

My mortgage on 20-acre farm was only 5% down with Farm Credit, and a comparable interest rate as a traditional mortgage (like a 0.25% difference).

[mmeqcenter]

Yes, farms sit on the market for longer than residential homes largely because financing can be a nightmare.
What I was told by traditional lenders, when I was searching in 2016, was that a traditional mortgage requires that the house itself be worth at least 80% of the total property value and the land value be no more than 20% of the total property value. Number of acres didn’t matter if those ratios were met. So, theoretically one could get a traditional mortgage on a 40-acre property - if you assume a value of $10k per acre then the house would need to be worth >=$1.6m.
A farm/agricultural loan reverses it, the home just has to be at least 20% of the total property value.

[Lucassb]

@LovesHorses

I am a Realtor in Seattle. We have no problems getting conventional financing on these places since there is a home. Buyer just needs to qualify with their day job…not using income coming from the farm business. Only risk is the appraiser might not understand the value of the barn, arena, etc. Make sure you use an equestrian agent that can help justify the value.

This. We bought our farm (~7ac) about a year and a half ago and got a conventional mortgage. Had no problems at all and got a very competitive interest rate.

[candyappy]

All we have ever had is rural small farms with acreage between 7 and 50 acres and never had an issue with financing the purchase. All fixed rate, low interest, conventional mortgages.

Look at banks that are in your area. We almost always went with a local bank.

[TheJenners]

@LovesHorses

I am a Realtor in Seattle. We have no problems getting conventional financing on these places since there is a home. Buyer just needs to qualify with their day job…not using income coming from the farm business. Only risk is the appraiser might not understand the value of the barn, arena, etc. Make sure you use an equestrian agent that can help justify the value.

My case here as well (close-ish to Seattle). I had to do some hunting initially because I was doing a construction loan on a 95 percent finance, which is a specialty in and of itself, and I did have a few places not interested in my “portfolio” because I was building a smallish house on nine acres. But a conventional bank (Banner) picked up my construction loan and kept the conventional loan when it rolled over after construction, and I just refi’ed to another bank, still a conventional loan. I agree about appraisers not necessarily knowing horse property, though in this area you can nearly pick your price when selling ready-made horse property. Most places, arenas and fencing don’t add much value, but here it seems to actually come close to paying for itself.

Hence why I have no heartburn with the HELOC I got through my credit union to build my arena next year (great terms too).