Getting a loan to buy a farm is often more difficult than getting a home mortgage, due to the risks associated with owning a farm, such as vulnerability to a drop in land prices and changes in crop prices. Many traditional home mortgage lenders have no experience in agricultural loans and consider farming a business loan rather than a real estate loan. Doing your homework and finding the right lender will lead to a successful farm acquisition.
Put together personal financial statements for all individuals who will be listed on the farm loan. Include all personal assets and liabilities.
Check your credit report for accuracy. Make sure your credit is in good shape and that any discrepancies are cleared up before you begin applying for financing. Each person is entitled to a free annual credit report from each of the three reporting bureaus. You can view your free report online at www.AnnualCreditReport.com, or call 877-322-8228 to have a copy sent to you.
A good credit score is considered to be around 750. If your credit score is anywhere in the 700's you should be able to get good financing. A score in the 600's may mean your loan will have a higher interest rate.
Develop a business plan to describe how you will profit from your farm. This may or may not be needed for financing, but it is a good way to guide your future actions to ensure profitability.
Find a lender that specialises in farm mortgages. A farm mortgage usually has more flexibility than a traditional mortgage, including payment holidays and varying loan terms. Another way farm loans are flexible is that they can cover a variety of purchases. Farmers looking to expand their operations through buying additional land can consider getting a farm loan.
Another attractive option for farm financing is the Farm Service Agency (FSA) loan program through the United States Department of Agriculture. FSA will make direct or guaranteed loans to small or medium-sized farmers who cannot obtain a traditional commercial loan. These funds can be used for land, livestock, equipment and supplies. Applications for this program are available on the FSA website.
Fill out the necessary paperwork and apply for financing.
Have an appraisal done on the farm property you wish to purchase to ensure the purchase price reflects market value. Assess the sale price of comparable properties in the area that have sold in the last year or so.
Evaluate loan offers and determine which will work best for your situation. Look both for low cost and flexibility.