How to finance the purchase of a farm

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Thanks to everyone for ideas on how to make some money.

The problem I am running into now is getting a loan to purchase a farm. They want the farm up and running with a history of income before loaning money to purchase it even though my husband would still work.

Now I can see why so many farms are being developed- unless a family member takes over it is too expensive just to buy a homestead. If you work off the land how can you ever get a farm started?

Any ideas on how to finance this venture?

Amy

-- Amy Richards (tiggerwife@aol.com), May 09, 2000

Answers

The politicians love to howl about the decline of the family farm, the bankers howl, and so do city people. The reality is it can be almost impossible for someone to start farming these days. Even family members have trouble taking over the family farm.

Are you truly buying a farm? If so, it should have a history of production already. If you are buying an acreage, buy it as a country house instead of potential production. Will the current owners finance it? Perhaps a lease-to-own deal? Most library books on real estate will be too dated, but check anyway, plus on the internet and with realtors about various creative financing possibilities.

If you are moving away from where you are established, you are in a double bind. The bank where you are now doesn't want to get involved in a loan so far away, and the banks where you are going don't know you. A good credit history will help. Unfortunately, if you've been responsible with your money, you won't have much of a credit history. How much cash can you scrape up for a down payment? Can you borrow from family to up the amount?

You need to make yourself as attractive as possible to potential lenders whether bankers or the land owners. A large down payment is helpful. Good credit history. Any farming assests you already own.

But if this truly is a farm, and you don't have farming experience, you're not going to have much luck. Plus, large-scale equipment is terribly expensive; on top of a land loan, you might go under. With your husband (and he's the one they're going to care about) mostly gone that leaves just you to farm. If you have to borrow equipment or hire others to do the work, or even if you have or can get smaller equipment, the amount of work involved for one person, especially if inexperienced, will be overwhelming.

Try talking to the lenders and figuring out what their problems are with you and what you can do to solve them. To be honest, you're most likely strangers to the area, that counts against you. They may object to any active role you as a woman take either in obtaining the loan or in the planned operation of the farm-though most of them are smart enough not to say that specifically.

You can try Small Business Administration,or the state the farm is in may have some sort of beginning farmer program, but there will be a lot of hoops.

I'd say if this isn't a true farm, buy it as simply a home in the country. Gerbil

-- Gerbil (ima_gerbil@hotmail.com), May 09, 2000.


Does your agent know of any finance firms ? Sometimes its best to go through a finance company , and later on down the road you can go to the bank to refinance .

-- Patty Gamble (fodfarms@slic.com), May 09, 2000.

Are you trying to get a farm loan or just a real estate loan? When we bought our farm, we bought one that the monthly payment is the same as a house in the city. We also bought on contract so we wouldn't have to jump through hoops.

Definitely try the beginning farmer programs and most farming states have them. Ask at the extension office about them. Try the farm credit place (can't remember the exact name). They are the lender of last resort for farmers. Also ask at the FSA office about government financing (wouldn't really want to do it as they want a lien on everything you own and you can't make very much money).

If you have a creative realtor, you can make things happen.

-- beckie (sunshine_horses@yahoo.com), May 09, 2000.


Amy, I don't know if this is going to be any help to you ar not, but I will tell you what we plan to do, IF we can sell out here for enough to pay off all our bills and still have a small amount of cash left. We want to find some land, cheap and with low taxes, in an area where nobody cares too much about building codes. We'll have a good down payment on the land, low payments, and enough income to keep us going for a while without my husband having to find a job immediately -- but even if he did have to work, we wouldn't need a large income, it would just slow us down a little as he wouldn't be at home as much -- which is what we are trying to get away from here. We want wooded land, and will build (without trying to meet codes) whatever will protect us from the elements while we get the place going. The main thing is to get the land fenced, and a barn up, before we try to get any animals. Once the farm is going and starting to bring in some income, then we will work on a better house. But we will, hopefully, have several years without any bills but a small land payment to give us time to get the farm set up -- and I do mean time, because if you have time, you can do almost anything yourselves, whereas if you don't have time, it will cost you a fortune to hire someone else to do the work. We are still young enough to not mind roughing it for a few years, but I do hope to have running hot and cold water before I get too tired of hauling buckets around!! We don't need electricity for very much -- it is surprising how many alternatives there are, and many can be made at home out of inexpensive materials. The key to this is finding a place without codes, which is getting harder all the time. A good number of our ancestors have done this. One well-known example that comes to mind is the Ingalls family from Little House on the Prairie -- and I am referring to the books here, not the TV series. The biggest mistake Pa made was one year when he went in debt to buy materials for a new house, thinking they'd be able to pay for it out of that year's crop - - of course, the crop failed, and they lost their place. So the big lesson is don't go in debt!! Suffer anything, but don't go in debt.

-- Kathleen Sanderson (stonycft@worldpath.net), May 09, 2000.

The local Farm Service Agency is out for the week- I am going to get in touch with them Friday.

The place has been a farm for a hundred years but hasn't worked lately because the owner passed away. They are eager to finally settle the estate so they so not want to finance.

The only income is boarding a few horses and selling hay.

We have great credit but the banks, of course, need full payments right away.We would put about 10% down.

-- Amy Richards (tiggerwife@aol.com), May 09, 2000.



Amy: Just ran into this ourselves, while looking at a place,160 acres, where the owners had passed away, and the farm was going to be auctioned off. That was a little tricky getting financing, when you don't know what the bid is going to be, but our banker, where my husband has banked since he was in junior high school, agreed to take a look at the place, came up with a top appraisal of what he thought the place was worth, as a country home only, and they would loan us 75% of that amount. FOR 6 MONTHS. We would have to sell this place to pay the difference and pay off the loan. Since we are 50ish, he didn't think it was "practical to make a 30year loan to someone our age"! My husband is retired from the military, and his retirement pay will not decrease, as it would if we were going on social security or something, but it didn't matter. Luckily we can cover the difference. Our local bank, where we have a 30 year mortgage on our current farm, won't loan that far away, so not many alternatives. We ARE too old for the beginning farmer loans, but there are a lot of options out there. Good luck, and I hope you find something. Jan B

-- Jan B (Janice12@aol.com), May 09, 2000.

You might research to see if there is payment for open land easements in the area you want to buy land in. Sometimes if you agree to keep the land in farming or "open" (as in not making a subdivision and putting up a bunch of homes) you can get an outright cash grant and a very substantial one at that. Carroll County, Maryland has the most successful and well thought-out program but other counties and states are following their example. Hopefully yours is, too,

-- Elizabeth Petofi (tengri@cstone.net), May 13, 2000.

Here in NH there is what is called "current use" to keep the land open. It doesn't pay a cash grant, but does at least reduce the property taxes. If a person bought our property and subdivided it later, they would have to pay all the back taxes back to when it was put in current use, so it really provides quite an incentive to keep the land open.

-- Kathleen Sanderson (stonycft@worldpath.net), May 14, 2000.

try the Farm Home Administration, Rural Development (USDA)in the area you plan to buy in

-- sharon rossiter (slr@tctelco.net), April 24, 2001.

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