Farm ownership is expensive. But, with the help of the FSA, you may be able to secure a farm loan with little money to start. This is good news for many beginning farmers who have little capital to start. The USDA helps make it easier with both Direct and Guaranteed Loans.
Getting Help With the Down Payment
The USDA requires all beginning farmers to put down at least 5% on the farmland. If you can come up with this amount, the USDA will provide a down payment loan that provides 45% of the farm’s purchase price. The 50% that remains can be obtained via one of the USDA’s farm loans, either the Guaranteed or Direct program.
The maximum amount the USDA will lend for the down payment is $300,150. In other words, you can purchase farmland for as much as $667,000. The USDA will lend you 45% of this amount and you must come up with an additional 5%.
How to Get a Down Payment Loan
The USDA provides the down payment loan only to beginning farmers. However, this term likely has a different definition than you imagined. A beginning farmer is a farmer with less than 10 years of experience.
Even though you must be a beginning farmer, you need some experience. The USDA requires at least 3 years of experience. This lets the USDA know that you know how to run a farm and are a good risk. If you are not experienced, you could run the farm into the ground, which would make it hard to make your loan payments. This puts the USDA at risk. It’s been determined that farmers with 3 years of experience have what it takes to make things work.
Getting the Down Payment Loan
You can apply for the Down Payment Loan through your local Farm Service Agency. They can help you apply for the loan as well as learn the current interest rates for the down payment assistance. In general, the rate will be at least 1.5%, but the rates vary often. You can find out the exact rate at any given time on the FSA website.
Financing the Farm
The Down Payment Loan only gives you 45% of the farm’s purchase price. Adding this to the 5% you must put down and you have half of what you need. The remaining 50% can come from one of the USDA’s farm programs. They offer two programs, the USDA Direct and USDA Guaranteed Farm Loans.
The Direct loan comes directly from the USDA, as the name suggests. You apply directly with the USDA and deal with them throughout the loan’s processing. In order to qualify, you’ll need to prove that you have stable credit, enough experience operating a farm, and be the owner/operator of the farm. The USDA has the final say in whether you get approved for this loan.
The Guaranteed Loan also goes through the USDA, but in an indirect way. You do business with a lender who operates for the USDA. The USDA guarantees the loan for the lender. In other words, they promise to pay the lender if you default. The USDA guarantees 95% of the loan for the lender. The lender has the final say in who qualifies for the loan. In general, you’ll need good credit, plenty of experience, and proof that you can make a farm profitable.
Buying farmland is possible with a small down payment, compared to the price of the farm. If you can secure a Down Payment Loan, you’ll only need 5% of your own money. It may take some time and a lot of paperwork, but in the end, you’ll have the money to buy the farmland to get you started in your farming career.