A Guide to Buying Your First Farm
As a farmer, there’s little -- if anything -- that compares to the pride and satisfaction that comes with owning land. But how do you get started? Buying farmland takes capital. Conventional financing requires a down payment of up to 35%.
One great solution is utilizing the beginning farmer loan program available through the USDA-Farm Service Agency (FSA). The FSA offers direct loans to farmers as well as guarantees on loans originated through commercial lenders. Often, an FSA direct loan is part of a joint financing package made in partnership with a commercial lender.
The FSA loan process may seem cumbersome, and making sense of it can be intimidating and frustrating. You really need an experienced partner to help guide you through the entire process. Many first-time land buyers have found Compeer Financial to be their ideal partner. Our team lives and works in the communities we serve. Many are farmers themselves and they’re well-versed in the FSA loan program to guide you every step of the way.
FSA Beginning Farmer Down Payment Loans are a great way for eligible farmers to get started. This loan program is sometimes called the 5/45/50 program, where a participating lender, like Compeer, could finance 50% of the purchase, FSA could finance 45% of the purchase, and the borrower would put 5% down, the total amount loaned covers up to 95% financing of the land purchase. The interest rates on these loans are very compelling which makes them a great option to consider, for those who can qualify. There are other benefits with the program. Under the FSA Beginning Farmer Down Payment Loan Program, FSA covers the cost of the real estate appraisal and waives its normal 1.5% guarantee fee if the commercial lender requests a guarantee on its loan. With a loan guarantee, Compeer discounts the interest rate on its loan.
Confused yet? No worries. With all the right groups working together (you, your advisors, your lender, FSA) the process will be handled efficiently and hassle free. Lean on these people to answer all of your questions and listen to their experiences and insights.
Farm Credit Lenders
Lenders who are part of the Farm Credit System, like Compeer Financial, are solely dedicated to supporting rural communities and agriculture for the long term. Plus, they have programs specifically for young and beginning farmers. Compeer, for example, offers “Groundbreakers,” which provides guidance, exclusive, robust educational opportunities, educational grants and a beginning farmer loan program. Through Groundbreakers, Compeer offers up to 85% loan-to-value, depending on the size of the loan and creditworthiness of the borrower. With a United States Department of Agriculture – Farm Service Agency (USDA-FSA) loan guarantee, that loan-to-value increases up to 90%, making down-payment goals much more attainable.
USDA-Farm Service Agency
The USDA has a special agency, FSA, that offers programs, information and resources to those in the ag industry. In addition to direct loans to farmers, they partner with ag lenders to provide loan guarantees.
FSA Guaranteed Loans are loans issued by lenders (including Compeer) that are backed by an FSA guarantee. With a maximum loan amount of $1,825,000, and an additional upfront cost of about 1.5% for the Guarantee Fee, these FSA Guaranteed Loan loans are a good option for farmers who want to buy additional land but do not qualify for a conventional loan.
Most importantly, seek guidance from trusted experts and do your own research so you understand the numbers and the loan options available and what it will take for you to achieve your goals. We understand. Information overload is a real risk. No one expects you to know it all. That’s why we’re here. You’re about to buy your fist land tract, you should be excited and eager about this amazing opportunity, not bogged down with all the rules, processes and regulations. Compeer is here to help.