Like I mentioned before, the Farm Service Agency (FSA) – a division of the U.S. Department of Agriculture – is a great place for people of any age to start looking for assistance to farm or ranch. The agency has a special pool of funding earmarked just for beginners. They offer a variety of real estate and operating loans as well as youth loans and incentive programs for beginners.
Farm Ownership Loans
To apply for a real estate loan, a beginning farmer or rancher, according to the FSA, is a person who hasn’t operated a farm or ranch for more than 10 years, doesn’t own more than 30% of the median size farm in their county and has at least 3 years experience (within the last 10 years) making management decisions for a farm or ranch or has filed a schedule F for 3 years.
FSA can’t refinance loans and doesn’t loan more than the appraised value of a piece of property. They won’t loan more than $300,000 on a real estate loan, but do pay the appraisal fee for any potential purchase.
FSA can finance up to 100% of a real estate loan for 40 years at the current monthly interest rate (4.625% for September 2011). They also provide joint financing – FSA loans up to 50% of the purchase price for up to 40 years and a commercial lender provides the other 50% or more of the loan.
One of the most popular farm ownership loans the FSA offers is the Down Payment Program. Applicants pay a 5% cash down payment on a piece of land, then the FSA provides a 20 year loan at 1.5 % interest for up to 45% of the purchase price or appraisal value (whichever is lower). The applicant receives the rest of the loan from a commercial lender or private party at their individual terms and interest rate.
The FSA can also guarantee up to 95% of a loan if it is obtained through commercial financing. The loan must have an amortization period of at least 30 years and no balloon payment due within the first 20 years of the loan.
The FSA has some great opportunities for farm ownership if you meet their requirements. Next time, we’ll talk about FSA operating and machinery loans.