We are trying to buy a small farm (35 acres). If anyone remembers we had a previous place picked out, but since it had too many issues, we passed on that. We had been preapproved to buy that property by the bank. Now we found another place and it’s in great shape. I got preapproval ahead of time for twice the purchase price. My credit is excellent. So here comes the snag. They say it is a farm(>20% ag), so won’t finance as our primary residence. The farm division won’t finance because we are not going to farm it (I’m waiting on their definition of farming as we will have a 8 acre hay field in production). So we’re screwed. I could buy it cash, but don’t want to tie up all my liquid assets, so I have 30 days to find an alternate source of financing. Anyone know a good place to get a private horse farm financed?
Do you have Farm Credit in the PNW? I would start with them, or try Googling agricultural lenders in your area.
I second the Farm Credit recommendation. We financed through AgStar, slightly higher rates than traditional home mortgage, but they finance hobby farms, traditional farms, hunting land, etc.
Thanks, right now the only lender that comes up from the Farm Credit site in our area gave me a 5.6% interest quote. that’s over a full point more than my previous rate and I really don’t want to go there.
We’re not buying in the PNW, we’re selling that one and buying in the Midwest. You’d think there would be lenders for these properties… no wonder they sit on the market so long…
The interest rate at Farm Credit is typically 1 full point more than the regular rate would be through a traditional lender for larger pieces of land (I think they told me over 25 acres). However, you get a yearly dividend paid back to you in that “larger” category. For smaller farms it was only a half point higher, but no dividend. IIRC Farm Credit also told me they would do some sort of refinance for a certain fee (less than a regular mortgage would cost to refinance), so maybe if you have enough cash to buy out right, but don’t want to tie it all up go with Farm Credit and just pay off the principal faster…
That’s how Farm Credit (east) explained it to me when we were trying to close on a borderline large farm.
Ours also ended up having way too many issues and we walked away. Now we are in attorney review on a much more manageable sized place for the 4-5 horses I want to have and are able to obtain regular financing, which SO is thrilled with.
Thanks, it’s not just tying up my cash, it’s taking it out of where it is at the wrong time so I’d rather not do that…
Does the dividend make up for 1/2 percentage point?
This is so dumb… and frustrating…
Anyway, realtor is talking to his broker… we’ll see
I believe the dividend could vary, but my friends over here who are financed through them have typically received a check for close to or over 1 month’s mortgage payment per year. Of course I’d recommend asking your Farm Credit branch what their experience has been recently to get a better idea of what to expect. Good luck! 
Thanks,
Just talked to another broker and he’s trying to see if he can get the underwriters to take it under a conventional… he wasn’t hopeful.
The reason is that the risk the lender takes on higher levels of risk on bare land in agricultural enterprises and want’s to be paid for taking that risk. This is just the way the system views risk. If you have very good credit score and you put down 20%+ and are willing to take a shorter term mortgage (15 years or less) then you can do better.
We deal with River Valley AgCredit, which is an agricultural financing cooperative that works in our area. I pay a full point more that I might in some other instances but I also get a patronage refund which returns to me some of the profit from the co-op if they’ve done a good job on lending. It was very nice this year. But a not so long ago we didn’t get patronage for three years during the recession as the management built up a cash base against losses. We are a small enterprise and we had a dairy farm go under that cost us a $500,000 loss. Chase or Citi would laugh at that; we didn’t.
My advice would be to see if there are any agricultural funding co-ops in your area (your Extension Agent should know) and if there are talk to them. But you’re going to pay more interest on the kind of loan you seek no matter who funds it.
G.
It’s just frustrating given the value of this property is not the land. It has very limited ag use. It’s too hilly. The hayfield is the only tillable part. A good 5 acres is under water…The house alone is worth the agreed purchase price and it comes with an indoor arena and barn (which I realize they will not consider as added value and that’s OK). I have excellent credit, 6 figure income and am willing to go 40% down and still no deal… I realize the whole risk thing, but this is not a risky venture for them… I won’t give them a 20% premium on interest rates for this…
can you get the seller to divide the property into two tracks…one the house the other most of the land? Tie the two together requiring both to purchased together but put 99.99% of the total purchase cost on the house which would be financed , the second track of about 34 acres of just land be priced at 0.01% of the total and pay cash?
Would require survey to plot the track into two lots A and B
We are looking at similar places in PA, have a similar financial situation and have had similar warnings about non-conforming “farms”. Like anyone can make a living farming 20-35 acres. An Ag Leader will want the 20% interest rate premium you mention that I also am unwilling to pay. Took some leg work but I found there are still a few regional banks in my area that are more flexible issuing a Residential mortgage at Residential rates and keep the loans in house. You may need to sweeten the pot moving some other banking business their way, and don’t mention the hay field ;). You are buying a residence and need to finance it as such maintaining your liquidity.
Good luck and keep us posted.
Yeah, that was brought up as an alternative. Takes time and money to subdivide, plus it would require rezoning. We only have a little more than 30 days until closing… As long as the zoning is listed as AG, the mortgage companies won’t touch it for a conventional. And that would raise taxes on it… So I guess any way you look at it, I’ll be paying…
I can walk away as the contract states I must get financing below a certain rate and if not I can walk…
So now I just need to figure out how much more I want to put in…either through higher rate, taking out cash (which will cost me tax wise) or trying the splitting thing (which owners may not go for, and will cost me significantly more in taxes) or just walk, It’s a great property and finally one that has everything we need ready to go. Grrrrrrr
Going into a purchase of 35 acres, I would expect a higher interest rate for an agricultural loan. We only barely managed a conventional loan for 20 acres, and only because the house is big and therefore a large percentage of the value of the place.
If the farm is really what you want, I would just accept the higher interest rate, and make it a priority to get it paid off as soon as possible.
An ag loan will be more expensive. It just is and that makes sense as farms are a riskier profile.
Perhaps the owner will do owner financing? I know quite a few farms that have been owner financed at going rate with a decent down payment. It can work well especially if you aren’t dependent on the farm for income so they don’t have to trust your ag skills.
Interesting with the Zoning being an issue. I have not found Zoning to effect the banks decision locally. Lots of residential homes in Ag zones around here. I hope you figure something out. I know how hard it is to find a place turn key for needs. On the other hand, if you can’t finance it with your circumstances the seller will be waiting for a cash buyer …
What you just described is even MORE risky than if the land were flat!!!
It’s your decision but unless you can get seller finance you’re going to pay a premium. And 20% might just, in fact, be pretty reasonable.
G.
Depends on how you look at it. If it was the same house on a 3 acre lot for the same price, they wouldn’t bat an eye. So the extra hilly pasture and woods shouldn’t increase the risk level. No, there’s no income coming out of that land, but it isn’t more risk either… The last farm I bought was a conventional mortgage and it’s not much different than this one…
yeah, it seems odd. I haven’t run into that before… two brokers told me that as long as it is zoned ag, they can’t touch it… And of course the farm loan people don’t like that it isn’t actually very farmable…
I figured if the house could appraise (and it would), that they wouldn’t care about the land… but no…
We’ll end up either going cash or biting the bullet on ag loan. Need to run the numbers and see what is in our best interest.
