As ground starts to come up for sale this fall, it’s important to know what options and tools are available. A tool often overlooked by producers is USDA Farm Service Agency’s Farm Ownership Loan Program. Options within this program can provide qualifying producers with 100% financing, with favorable, long-term, fixed rates for land purchases.Joint Financing
We’ve been successful using Farm Service Agency (FSA) Farm Ownership Loans in conjunction with financing from our bank. This joint financing option allows buyers to borrow 50% of the purchase price, up to $300,000, at 2.5% fixed rate for 40 years from FSA. With the remaining amount being funded by a participating bank and FSA guaranteeing that remaining amount, you usually end up with a blended, fixed rate below 5% for 30 years.
In other words, it creates favorable terms for qualified buyers to purchase land, especially if they need a longer amortization to pay for the land.
So, you want to purchase land, but the down payment seems like such a hurdle. You’re not alone, and we’ve had a lot of success with the FSA Down Payment Loan to Beginning Farmers program. Beginning farmers are defined as farmers or ranchers who have been in business for less than ten years and who do not own a farm/ranch greater than 30 percent of the average size farm/ranch in the county.
With this program, a borrower can put as little as 5% of the purchase price down, while FSA finances 45% of the purchase up to $300,000 for 20 years at a 1.5% fixed interest rate. Same as noted above, with the remaining amount financed by a participating bank and including an FSA guarantee, the borrower can achieve a blended interest rate that is well below 5%, enabling buyers to purchase land at favorable terms.
This type of loan is perfect for somebody with a strong cash flow, who can handle the shorter amortization but might not have enough cash for a larger down payment.
There are many more tools and options available to those who are looking to buy land and build their operation. It’s important to have a strong relationship with your lender and keep an open dialogue, discussing options as they come up.
I heard a quote that really stuck with me, “When preparation meets opportunity, it often equals success.” There will be opportunities that come, and it’ll be important to have your operation positioned in a way that you can take full advantage of them.
Colby is a Relationship Manager / Officer at Heartland Bank. He graduated from UNK with a degree in Finance. Some of his hobbies include hunting, fishing, wake boarding and skiing.
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