Hobby Farm Financing for Homeowners and New Buyers

You’ve definitely outgrown your raised bed gardens, but you aren’t ready to commit yourself to farming full-time. It could be time to become a hobby farmer — that is, a farmer who aims to be self-sustaining with their crops or livestock rather than raise them for profit.

Hobby farmers typically work around 10 acres of land, though some have larger operations. If you’re thinking about starting your own hobby farm, the first thing to do is decide where it will be located. The second thing to do is create a plan, which includes understanding your financing options. Whether you own land already or need to purchase acreage will play a role in the types of loans available to you.

Hobby farm loan options for land owners

If you own a home situated on a few acres of land that you’d like to farm, you have a few financing options to consider. Since you already have land, your main focus will be on getting the equipment and infrastructure you need to properly set up your hobby farm.

As a homeowner, you may choose to look at options that allow you to tap into equity you have currently built up in your property. Home equity lines of credit or HELOC and home equity loans are the two most common options.

HELOCs offer borrowers some flexibility. They offer access to cash as you need it based on the value of your home. Typically, you’d have access to funds for a set period of time ­­– say 10 years -- and during that time you’d pay back the interest on what you withdraw. After the 10 years, you’d pay back the interest and principal over a longer time period. It’s a little like having a credit card in that it is a revolving source of funds. One important thing to keep in mind with a HELOC is that the access to cash isn’t the only thing that’s flexible. The interest rate you pay is tied to the market, which means you can expect it to fluctuate with market changes, and that will affect the amount you pay back.

Home equity loans are also based on the value of your home, but unlike a HELOC, you don’t have a revolving line of credit. Instead, you receive a lump sum and pay back the amount over a certain amount of time, typically 20 years. Home equity loans have a fixed interest rate for your repayment, which means the amount you pay back each month won’t change.

The biggest thing to remember when it comes to these two options is that taking on either of them means you risk losing your home if you cannot pay the loan back. If that isn’t something you’re comfortable with, don’t worry. There are other funding options out there for aspiring hobby farmers.

Hobby farm financing for new buyers

If you’re not ready to borrow against your home, or you’re looking for a completely new location to build your hobby farm, you still have financing options.  

Compeer offers hobby farm loans that help new hobby farmers get set up with a mortgage that fits their needs. Other options to consider are starter loans, land loans, construction loans, or livestock loans, depending on what your plans are. Sorting out which loan is right for your particular situation can be a little confusing, but working with a financial expert will help.

For buyers completely new to rural living, working with a lender that understands the ins and outs of ag financing will be critical. Your lender should be able to point you to financial products that are designed specifically for farmers with unique needs, help you understand the paperwork you’ll need to have ready, and guide you through the process to complete your loan application.

Get the right financing for your hobby farm from Compeer Financial. Contact us now to connect with a financial professional.