Buy A Farm With No Money Down
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For either loan, you have a repayment period of 25 years to pay back what you borrow. This is not to be confused with other types of FSA loans like FSA guaranteed or direct farm loans which are 40 year farm loans.
FarmRaise is all about finding farmers funding options, and we're building a database of grants that farmers can browse to find more low-cost ways of funding their projects. If this is interesting to you and you want to stay in the loop on funding options, check out how we partner with farmers to find funding.
Farm Ownership Loans offer up to 100 percent financing and are a valuable resource to help farmers and ranchers purchase or enlarge family farms, improve and expand current operations, increase agricultural productivity, and assist with land tenure to save farmland for future generations. With a maximum loan amount of $600,000 ($300,150 for Beginning Farmer Down Payment), all FSA Direct Farm Ownership Loans are financed and serviced by the Agency through local Farm Loan Officers and Farm Loan Managers. The funding comes from Congressional appropriations as part of the USDA budget.
Also known as a participation loan, joint financing allows FSA to provide more farmers and ranchers with access to capital. FSA lends up to 50 percent of the cost or value of the property being purchased. A commercial lender, a State program, or the seller of the farm or ranch being purchased provides the balance of loan funds, with or without an FSA guarantee.
The Down Payment Farm Ownership loan is the only loan program that does not provide 100 percent financing. Down Payment loans require loan applicants to provide a minimum cash down payment of 5 percent of the purchase price of the farm.
The Direct Farm Ownership loan is different from all the other FSA loan offerings because Congress wrote into the law an additional 3 year farm management experience requirement. These 3 years of experience must be within 10 years of the date of loan application.
Direct farm ownership loans, in other words, can be useful at any stage of the property purchase or maintenance process. They can be particularly helpful, however, to first-time farmers who need to cover the down payment on a new farm.
At MSF Agriculture, we make it easy for beginning farmers to navigate the complexities of the loan application process. Are you ready to apply for a farm loan that will help you to cover your down payment? If so, our expert lenders are standing by and ready to help. Please contact our office to learn more about the Direct Farm Ownership Loan or to submit your application today!
The National Young Farmers Coalition created a Finding Farmland Calculator that can help farm seekers explore methods to finance their farm purchase. Be sure to check out the videos series on this tool, beginning with Finding Farmland Calculator Walkthrough: Introduction.
Zero down financing is a loan product that involves the financier to fund the full amount of the desired purchase without an initial down payment from the borrower. Although an attractive option for borrowers with limited cash flow when embarking on a new land investment endeavor, strings are frequently tucked into the fine print of these types of products and are a rarity among land loans. In fact, land and residential financing are commonly viewed the same yet carry distinct differences.
If 100% financing comes with a higher price, why do people choose this option when securing a land loan? Several situational circumstances can lead a borrow to choose a zero-down loan, including:
The worst-case scenario for zero down financing is the potential to overburden your operation with more debt than it can support. Setting up a loan structure that restricts cash flow and increases the chances of a borrower defaulting on a loan is a form of unethical lending that reputable lenders work hard to avoid. Exercise caution with a lender who is quick to secure zero down financing with minimal requirements as they are not doing their due diligence to protect the financial health of their clients.
Sometimes, supporting a beginning farmer means directing them to federally-backed loan programs that give them a safe, minimal to no down payment loan to get their operation up and running. We maintain long-term relationships with many of these farmers and offer honest financial counsel so that when the time comes to grow their operation, we are able to provide the flexible financing required to get the job done.
No current or previous farm ownership requirements and 100 percent financing available make FSA direct farm ownership loans a valuable resource to help farmers and ranchers become owner-operators of family farms, improve and expand current operations, increase agricultural productivity, and assist with land tenure to save farmland for future generations.
Provides a low-interest Government loan, made in conjunction with a loan from a commercial lender and borrower down payment, to help beginning, minority veteran, and women farmers purchase a farm or ranch.
Through the program options below, USDA Rural Development offers qualifying individuals and families the opportunity to purchase or build a new single family home with no money down, to repair their existing home, or to refinance their current mortgage under certain qualifying circumstances. There are also programs to assist non-profit entities in their efforts to provide new homes or home repair to qualifying individuals and families.
On top of that you can also make friends with the farmer, which may seem quite strange to write off as an objective in all of this, but remember that you will not be alone on the market. A lot of the time, farmers need to help one another either with the trading of resources, sharing information from agriculture books or magazines about farming, or just generally helping each other around the place.
Even before you start working as a full-time farmer you should make your way through auction houses and you should check out as many deals as possible to make sure you spend as little money as possible on the items on the market.
This part is similar to the first step again, as you will need to find the best spot for you to start up your business in and you will need to become as friendly as you can be with the landowner so that you two can really work well with one another without any problems.
Commercial financing picks up where the FSA leaves off, providing additional programs with various lending limits, and usually shorter payback terms, higher rates, and higher down payment requirements. They offer fixed and variable rate financing for short and long-term loans, as well as credit lines, equipment loans and leases, and rural home loans.
The USDA provides a very competitive direct farm ownership loan where the FSA funds the farmer with no lending intermediary in the middle. There are also guaranteed farm loans where the FSA contributes up to 50% and a commercial lender or cooperative finances the rest, combined with a 5% down payment provided by the borrower.
To qualify for a farm credit, find a lender that finances in your state and see if you meet their credit score criteria. Some lenders require a credit score of 680 while others specialize in helping borrowers with much lower credit scores. Many loans will be collateralized by real estate, so there are many more farm loan options for you once you have an established farm. New farmers can qualify through loan programs designed to help them with less collateral and lower down payments, but typically require you to be under age 35.
Under the Direct FSA Farm Loan, you can borrow up to $300,000. You do not need any money down, but you cannot borrow more than this amount. The interest rate the FSA will charge is the rate that is prevalent when you apply and/or close the loan. You get the lower of the two rates. FSA rates are released the 1st of each month.
You can borrow the funds for up to 40 years, if you want to make your payments lower. The longer the term, the lower your payments will be. However, the longer you borrow the money, the more interest you pay over the life of the loan. If you are trying to build capital and expand your farm, you may want to try paying the loan off faster than 40 years.
The FSA Direct Loan provides would-be farmers with 100% financing for a farm worth up to $300,000. You can use the funds to start your farm and hopefully expand on it one day. As long as you have sufficient experience in farming (not ownership) and have a decent credit history, you should be in good shape to secure this financing for farm ownership.
DPLP is a special joint-financing loan program that creates a partnership between a private lender and USDA in order to help beginning, veteran, and socially disadvantaged farmers and ranchers purchase farm or ranchland. To qualify, an applicant must make a cash down payment equal to five percent of the purchase price of the land to be acquired, and must be able to secure a commercial loan for at least 45 percent of the purchase price.
FSA can provide up to a 95 percent guarantee on the private loan, and the participating lender does not have to pay a guarantee loan fee. FSA can also provide two types of federal guarantees to private landowners who sell to a beginning or socially disadvantaged farmer using a private land contract (see Land Contract Sales Guarantee section of this guide).
The interest rate on the FSA portion of the down payment loan is a fixed rate that is four percent below the direct farm ownership rate, but not lower than one and a half percent. Hence, if the regular (and already subsidized) FSA direct farm ownership interest rate is seven percent, the Down Payment Loan interest rate will be three percent. Or, for example, if the regular rate is three and a half percent, the down payment rate will be one and a half percent. Current interest rates can be found on the FSA website.
For example, the 2008 Farm Bill reduced the interest rate (which previously was four percent, regardless of what the regular rate was) and down payment requirements (previously 10 percent). It also added socially disadvantaged farmers to the program; originally DPLP was solely for beginning farmers. The 2014 Farm Bill maintained the lower interest rate and down payment requirements, and also increased the value of land that can be financed by FSA from $500,000 to $667,000. It also lowered the interest rate on all other joint-financing loans, so that these loans are more attractive to both lenders and borrowers than the traditional direct farm ownership loan that is 100 percent financed by FSA. 59ce067264