Loan for farm purchase

[foggybok]

@fourfillies

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.

I thought I had sweetened the pot giving the bank a boatload of business in the past. I was getting their premium rate… I might just have to switch banks now… They have annoyed me twice in the last month. They will lose a big account.

I think I’m toast on not mentioning the hay field, it was in the property description. The seller wrote it was a “working farm”. I tried some local people, but they all got hung up on the ag zoning……

They actually sent a letter wanting to know my intentions because it wasn’t apparent to them if I had “experience with this type of property”. I drafted a letter explaining exactly what we would do, but they still decided it was a farm.

Yeah, I don’t understand how 20-35 acres gets to be farm anyway, as you said, you can’t make a living off that……

I’ll just have to groan every month when they get that check…

[Guilherme]

@foggybok

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…

You are correct. But that’s because you would be getting a “conforming mortgage” in all likelihood and those mortgages are highly structured because they are made and then sold to investors in the form of a security regulated by the SEC. That means there is NO deviation from standards and the standard, last time I looked, was a house, one outbuilding, and a maximum of five acres. Some lenders will make a loan on that basis and only consider the that standard as having sufficient value to cover the mortgage. But others won’t because they don’t want the hassle that would come with trying to spit off the security for the loan from the rest of the property in the even of default. And if you use the word “horse” in your business discussions with any lender you will move into the “high risk” category as equine operations fail much more frequently than other agricultural enterprises.

So you’re left with Farm Credit in all probability. And they will charge you more because that’s what the market demands for taking a risk that is higher than with a conforming mortgage.

There is one more place you might try, and that is local credit unions. My first mortgage in TN was with a local credit union and they did not sell their mortgages (at least not on farm land). They also didn’t bat an eye about financing tractors or other equipment. Or barns or shed rows or anything “agricultural.” But as they did this they also charged a premium for doing it. But, then, no commercial bank in the county would even TALK about such things.

Have you talked to Extension in the area you’re looking at? If not then DO SO! They really are very knowledgeable in things regarding local agriculture and that includes financing options.

Do I understand correctly you’re selling another farm in the PNW? Do you have an agent? Are THEY knowledgeable on agricultural financing alternatives? I ask these questions as we are going to retire in the near future and sell the farm. I’ve interviewed multiple agents and only three so far knew about River Valley AgCredit (as well as Farm Credit and which credit unions would finance agricultural property). They all made the A-list of possible agents.

Ag is a VERY specialized financing segment and it has it’s own set of rules. It is more expensive because it is more risky to the lender.

G.

[foggybok]

@Guilherme

You are correct. But that’s because you would be getting a “conforming mortgage” in all likelihood and those mortgages are highly structured because they are made and then sold to investors in the form of a security regulated by the SEC. That means there is NO deviation from standards and the standard, last time I looked, was a house, one outbuilding, and a maximum of five acres. Some lenders will make a loan on that basis and only consider the that standard as having sufficient value to cover the mortgage. But others won’t because they don’t want the hassle that would come with trying to spit off the security for the loan from the rest of the property in the even of default. And if you use the word “horse” in your business discussions with any lender you will move into the “high risk” category as equine operations fail much more frequently than other agricultural enterprises.

So you’re left with Farm Credit in all probability. And they will charge you more because that’s what the market demands for taking a risk that is higher than with a conforming mortgage.

There is one more place you might try, and that is local credit unions. My first mortgage in TN was with a local credit union and they did not sell their mortgages (at least not on farm land). They also didn’t bat an eye about financing tractors or other equipment. Or barns or shed rows or anything “agricultural.” But as they did this they also charged a premium for doing it. But, then, no commercial bank in the county would even TALK about such things.

Have you talked to Extension in the area you’re looking at? If not then DO SO! They really are very knowledgeable in things regarding local agriculture and that includes financing options.

Do I understand correctly you’re selling another farm in the PNW? Do you have an agent? Are THEY knowledgeable on agricultural financing alternatives? I ask these questions as we are going to retire in the near future and sell the farm. I’ve interviewed multiple agents and only three so far knew about River Valley AgCredit (as well as Farm Credit and which credit unions would finance agricultural property). They all made the A-list of possible agents.

Ag is a VERY specialized financing segment and it has it’s own set of rules. It is more expensive because it is more risky to the lender.

G.

I get all the whys and understand the regulatory part. I’m still just frustrated at the process… Seems arbitrary… When my CR is sitting at 848 and I clearly have the assets, it’s frustrating to get lumped into higher risk pools for an arbitrary reason. The piece surrounded on 2 sides by RR lots, it’s not way out in farm country… but it is what it is… I guess I’ll just be happy for the Ag zoning when I put my 500 cattle in a lot there… (just kidding of course, but they way it is zoned, I could pretty much do what I want with animals and they couldn’t say a thing…)

Not all extension agents are created equal. I know them all in our previous area, some great, some not so… But they certainly can be a good resource… One of the ones I dealt with in WA (neighbors daughter) got us all set up with a deal for water mitigation, which is a must in the area. Saved us a ton!

I will be very picky when we sell the WA place, also selling this house. I’ve sold enough properties in my time to have learned that you really need to interview agents and make sure they really understand your property type and the particular market… WA farm is zoned rural residential and open space, so not as hard to get conventional as this place. Speaking of agents, the sellers agent lists conventional financing as acceptable for this property. She saw the preapproval and the max rate on the purchase agreement and is probably the one who should have said something… We could walk, but the buyers are lucky, we really like the property, so we’ll figure a way…

[Guilherme]

In the Long Ago (mid-'70a when we bought our first rural property in WI) the only issue with the bank was the value of the property. If it would support the mortgage the ability of the buyer to pay was frankly downplayed. That approach played a big part in the S & L crisis in Texas when I lived there in the '80s. Even when we moved here in 1990 the emphasis was on the land. Then came the meltdown in 2008. Now the emphasis is heavily on the borrower and the the land has been de-emphasized. I understand why; the legal process around foreclosure was really complicated by the changes in law and practices since 2008. So you’re the “beneficiary” of the process.

Frankly, if the issue is a point on a mortgage rate and everything else works then pay it. If it will break the bank then maybe that won’t work. I understand your frustration. But the Third of the Great Lies (“We’re the Government; we’re here to help you.”) is a big player in all of this.

Good luck in your multiple projects!

G.

[foggybok]

@Guilherme

In the Long Ago (mid-'70a when we bought our first rural property in WI) the only issue with the bank was the value of the property. If it would support the mortgage the ability of the buyer to pay was frankly downplayed. That approach played a big part in the S & L crisis in Texas when I lived there in the '80s. Even when we moved here in 1990 the emphasis was on the land. Then came the meltdown in 2008. Now the emphasis is heavily on the borrower and the the land has been de-emphasized. I understand why; the legal process around foreclosure was really complicated by the changes in law and practices since 2008. So you’re the “beneficiary” of the process.

Frankly, if the issue is a point on a mortgage rate and everything else works then pay it. If it will break the bank then maybe that won’t work. I understand your frustration. But the Third of the Great Lies (“We’re the Government; we’re here to help you.”) is a big player in all of this.

Good luck in your multiple projects!

G.

Thanks, I’m looking forward to my projects!

I’ll pay the point (or cash if I get too irritated), mostly because we’ve looked a long time for a property and this one is quite nice…and not missing anything…

I actually don’t have any issue with new regulations making loans harder to get. We don’t want another 2008! With the emphasis on the borrower, I should be golden… In this case they are emphasizing the land. But C’est La Vie…

In the end, I’m getting a great deal on a great farm with all kinds of opportunities to do fun stuff!

[Guilherme]

@foggybok

Thanks, I’m looking forward to my projects!

I’ll pay the point (or cash if I get too irritated), mostly because we’ve looked a long time for a property and this one is quite nice…and not missing anything…

I actually don’t have any issue with new regulations making loans harder to get. We don’t want another 2008! With the emphasis on the borrower, I should be golden… In this case they are emphasizing the land. But C’est La Vie…

In the end, I’m getting a great deal on a great farm with all kinds of opportunities to do fun stuff!

Go forth and do well!!!

G.

[clanter]

@Guilherme

In the Long Ago (mid-'70a when we bought our first rural property in WI) the only issue with the bank was the value of the property. If it would support the mortgage the ability of the buyer to pay was frankly downplayed. That approach played a big part in the S & L crisis in Texas when I lived there in the '80s.

G.

well that is a completely new topic but I worked for many of the developers who caused the S&L collapse… Don Dixson and Danny Faulkner … plus others… the land flips they did were just unbelievable … one property was “sold” eleven times within 24 hours at increasing value to get the worthless piece of dirt up to a value to support the mega million dollar loan

Before the collapse I was working on the gate system at Danny Faulkner’s personal heliport where he had his THREE Bell Long Ranger helicopters hangered … I asked Danny how many of the over 6,000 condo units that were being built by his company within eye sight were sold… zero… all were spec units

We sold our business which had nearly $2 million dollars of contracts for work on Don Dixon’s thirteen developments the next month… three months later the collapse occurred.

Dixon had acquired a little bitty savings and loan called Vernon Savings… which he brought to Dallas then started offering outrageously high returns on CDs drawing in hundreds of millions from around the world …which he promptly looted …

[Guilherme]

@clanter

well that is a completely new topic but I worked for many of the developers who caused the S&L collapse… Don Dixson and Danny Faulkner … plus others… the land flips they did were just unbelievable … one property was “sold” eleven times within 24 hours at increasing value to get the worthless piece of dirt up to a value to support the mega million dollar loan

Before the collapse I was working on the gate system at Danny Faulkner’s personal heliport where he had his THREE Bell Long Ranger helicopters hangered … I asked Danny how many of the over 6,000 condo units that were being built by his company within eye sight were sold… zero… all were spec units

We sold our business which had nearly $2 million dollars of contracts for work on Don Dixon’s thirteen developments the next month… three months later the collapse occurred.

Dixon had acquired a little bitty savings and loan called Vernon Savings… which he brought to Dallas then started offering outrageously high returns on CDs drawing in hundreds of millions from around the world …which he promptly looted …

Yup, that’s how it went down!!!

I have not bought or sold real estate since 1995. My son did a shortly after the collapse and was the beneficiary of the very generous “first time home buyer credit.” I helped him with the paperwork and it was a first class Charlie Foxtrot. He went VA and that presented it’s own problems. But he made the right decision to buy enough house but not too much (and lots of folks were trying to sell him “McMansions”). He bought in a quiet, well established area. He is seeing reasonable appreciation (beating inflation) but not like the “hot spots” where remodeled tract houses from the '70s sell for seven figures.

G.

[clanter]

after “the collapse” … Resolution Trust Corporation was a whole another ball of wax… the “acquired assets” of the collapsed savings and loans were treated like digging through a box of candy …little effort was made to maximize the return on the asset but rather “let’s make deal” prevailed

The new 13 story high rise Dixon was building for the new home office of Vernon Savings was a good example… Resolution Trust could not find a buyer (well didn’t really look for one either)… Vernon Savings had spent about $160 million putting up the shell and all support infrastructure (parking garage/access roads/utilities ) so after a few years sold the building clear title to Don Carter for $25 million…who sold it the next day to his sister May Kay for $50 million … Mary Kay used the building to move the headquarters of Mary Kay into… but kind of ran into a problem since the building had never been completed it was never issued a Certificate of Occupancy … the build was built before the provisions of ADA so ALL the restroom had to be ripped out and redone… $30 million to bring the building into compliance with ADA

But the building looked as though it was built specifically for Mary Kay as it used pink granite on the exterior and all interior common areas

http://www.marykaymuseum.com/worldheadquaters.aspx

[mellsmom]

Check with a local lender. Sometimes they will have a better rate than farmcredit and ,ight even have an inhouse product. We went local for our re-fi and it was pretty quick and the rates were better than FarmCredit

[IronwoodFarm]

Long time Farm Credit customer. I fully expect to pay a higher rate for a non-conforming loan. Since I have been around long enough to remember mortgage interest rates at over 20%, I am very happy with a point above market for a farm. Farm Credit offers a conversion which is a refi that allows you to reduce the rate without changing the term. That costs $250 and requires nothing more. We have done conversions over the years. I have never refinanced residential real estate for $250. Also love the dividends – about the value of one mortgage payment a year.

One thing to consider about the ag zoning is whether you want to take the property out of ag use. That can have a significant impact on property taxes. It also may include rollback taxes. We keep only an acre (the house site) of our farm in residential use and the rest is ag. It saves a huge amount in taxes. We have 135 acres zoned in 3 separate parcels.

The other benefit from Farm Credit is that you have access to other ag loan programs. We used them to finance our barn construction. They also have equipment loans. I have found them great to work with and they really understand farms.

[Guilherme]

@IronwoodFarm

Long time Farm Credit customer. I fully expect to pay a higher rate for a non-conforming loan. Since I have been around long enough to remember mortgage interest rates at over 20%, I am very happy with a point above market for a farm. Farm Credit offers a conversion which is a refi that allows you to reduce the rate without changing the term. That costs $250 and requires nothing more. We have done conversions over the years. I have never refinanced residential real estate for $250. Also love the dividends – about the value of one mortgage payment a year.

One thing to consider about the ag zoning is whether you want to take the property out of ag use. That can have a significant impact on property taxes. It also may include rollback taxes. We keep only an acre (the house site) of our farm in residential use and the rest is ag. It saves a huge amount in taxes. We have 135 acres zoned in 3 separate parcels.

The other benefit from Farm Credit is that you have access to other ag loan programs. We used them to finance our barn construction. They also have equipment loans. I have found them great to work with and they really understand farms.

Important information.

G.

[foggybok]

@IronwoodFarm

Long time Farm Credit customer. I fully expect to pay a higher rate for a non-conforming loan. Since I have been around long enough to remember mortgage interest rates at over 20%, I am very happy with a point above market for a farm. Farm Credit offers a conversion which is a refi that allows you to reduce the rate without changing the term. That costs $250 and requires nothing more. We have done conversions over the years. I have never refinanced residential real estate for $250. Also love the dividends – about the value of one mortgage payment a year.

One thing to consider about the ag zoning is whether you want to take the property out of ag use. That can have a significant impact on property taxes. It also may include rollback taxes. We keep only an acre (the house site) of our farm in residential use and the rest is ag. It saves a huge amount in taxes. We have 135 acres zoned in 3 separate parcels.

The other benefit from Farm Credit is that you have access to other ag loan programs. We used them to finance our barn construction. They also have equipment loans. I have found them great to work with and they really understand farms.

Thanks, Farm Credit does not service this area, but I was able to get Compeer (Formerly Agstar) to work on the loan.

The farm is under Green Acres and taking it out would increase taxes. It would also force the previous owner to pony up some back taxes (seller must pay in this area if you take it out). We plan to keep it Ag at this time. It gives is much more freedom on what we can do and keeps the taxes lower… We have 30 days after close to file for extension of Green Acres. They do not count horses as Ag though, but we do have other plans…

I’m thinking one of your Fjords would look really good on our new farm!

[Guilherme]

Where is this new place located? Farm Credit claims to be nationwide. I found this map:

https://farmcredit.com/locations

Compeer was one, but there were a number of others in IL and WI (where Compeer operates). The reason this can be important is that if there are multiple ag lenders you might be able to negotiate and get some better terms if they know there’s competition. That happened with me and Chattanooga AgCredit and the local Farm Service office. Even if there’s no price competition there is DEFINITELY customer service competition. When I contacted AgCredit the loan officer came to my house within a day and took the application. Farm Credit waited a week, we talked over the phone, and their interest rate was .5% higher than AgCredit on the same amount and terms. I thanked them for their time and said I’d already applied with AgCredit. Then, three days before my closing, they contacted me, wanted to take an application, and promised me a loan on closing day at .25% less than AgCredit. I said, “no” 'cause I don’t do people that way with whom I do business. Then there was the issue of a much higher application fee (a percentage of the loan, I’ve forgotten how much). That was an “oh, by the way…” in our conversation. The AgCredit fee was $100.00.

I’ve been an AgCredt customer for more than 25 years. I’ve refinanced at least a half dozen times as I needed funds for construction or other improvement or interest rates dropped. My loan officer keeps an eye on interst rates and will call me and tell if it’s good time to refi. That’s customer service!!! And up until about five years ago the refi cost was $100.00 plus recording a new note. The underlying mortgage, the security for the property, did not need to be redone under AgCredit’s rules. The cost of the refi has gone steeply, and now is $350, IIRC. Still a pittance compared to ANY other financial institution.

It does pay to shop around!

This is commercial lending, not consumer lending, and there is some negotiating that can be done in many cases. Just FYI!!!

G.

[dotneko]

I just want to chime in. Our Farm Credit East dividend is about 1.5x our monthly mortgage payment. Very nice sum to cheer up the February blues.
super easy to work with. The did a line of credit for us for cap improvement s too for tractor purchase.

[foggybok]

@Guilherme

Where is this new place located? Farm Credit claims to be nationwide. I found this map:

https://farmcredit.com/locations

Compeer was one, but there were a number of others in IL and WI (where Compeer operates). The reason this can be important is that if there are multiple ag lenders you might be able to negotiate and get some better terms if they know there’s competition. That happened with me and Chattanooga AgCredit and the local Farm Service office. Even if there’s no price competition there is DEFINITELY customer service competition. When I contacted AgCredit the loan officer came to my house within a day and took the application. Farm Credit waited a week, we talked over the phone, and their interest rate was .5% higher than AgCredit on the same amount and terms. I thanked them for their time and said I’d already applied with AgCredit. Then, three days before my closing, they contacted me, wanted to take an application, and promised me a loan on closing day at .25% less than AgCredit. I said, “no” 'cause I don’t do people that way with whom I do business. Then there was the issue of a much higher application fee (a percentage of the loan, I’ve forgotten how much). That was an “oh, by the way…” in our conversation. The AgCredit fee was $100.00.

I’ve been an AgCredt customer for more than 25 years. I’ve refinanced at least a half dozen times as I needed funds for construction or other improvement or interest rates dropped. My loan officer keeps an eye on interst rates and will call me and tell if it’s good time to refi. That’s customer service!!! And up until about five years ago the refi cost was $100.00 plus recording a new note. The underlying mortgage, the security for the property, did not need to be redone under AgCredit’s rules. The cost of the refi has gone steeply, and now is $350, IIRC. Still a pittance compared to ANY other financial institution.

It does pay to shop around!

This is commercial lending, not consumer lending, and there is some negotiating that can be done in many cases. Just FYI!!!

G.

That’s the same site I used. Oddly enough, the map did not show me any local places the day I looked (which I found odd, so I checked a number of times) and when I put in the property zip code, it sent me directly to the Compeer site. So that’s what I went with… Now Compeer shows up on their site. Either way, that’s where I would have ended up… Compeer is the provider for the area. And their service has been exceptional, so I’m not looking elsewhere. Plus, I hear that the local office has a well stocked ice cream cooler for clients (a friend has been a customer for years).

[Guilherme]

@foggybok

That’s the same site I used. Oddly enough, the map did not show me any local places the day I looked (which I found odd, so I checked a number of times) and when I put in the property zip code, it sent me directly to the Compeer site. So that’s what I went with… Now Compeer shows up on their site. Either way, that’s where I would have ended up… Compeer is the provider for the area. And there service has been exceptional, so I’m not looking elsewhere. Plus, I hear that the local office has a well stocked ice cream cooler for clients (a friend has been a customer for years).

Oh, they’re being nice and pushing drugs (i.e., ice cream, one of the world’s MOST addictive substances)!

When I used the map I used the state, vice the zip code, because I didn’t know any. I think that’s what gave me a much broader answer. Sometimes computers can help you too much!!!

Glad things are working out. Best of luck going forward!!!

G.

[piedmontfields]

@IronwoodFarm

Long time Farm Credit customer. I fully expect to pay a higher rate for a non-conforming loan. Since I have been around long enough to remember mortgage interest rates at over 20%, I am very happy with a point above market for a farm.

This. Keep this in perspective as you move towards the next stage of your life, OP.

[foggybok]

@piedmontfields

This. Keep this in perspective as you move towards the next stage of your life, OP.

I know I shouldn’t whine, I am lucky to be in the position to get this place, and that’s what I should concentrate on…

[foggybok]

@Guilherme

Oh, they’re being nice and pushing drugs (i.e., ice cream, one of the world’s MOST addictive substances)!

When I used the map I used the state, vice the zip code, because I didn’t know any. I think that’s what gave me a much broader answer. Sometimes computers can help you too much!!!

Glad things are working out. Best of luck going forward!!!

G.

yup, they had me with ice cream!