Not Sure Where To Start or What To Look For With Farm Mortgage Loans?
Purchasing land for a farm costs more than you may think. In Idaho, an acre of irrigated cropland is valued at around $6,020 while an acre of non-irrigated cropland is approximately $1,650.
If you are looking to purchase land and are navigating this increase in value, a farm mortgage loan can help you get the capital you need. But farm mortgage loans can be a bit tricky to navigate if you’ve never looked at one before.
Let’s take a look at where you should start and what you should look for when looking for a farm mortgage loan.
Farm Mortgage Loan Types
Just like with traditional mortgage loans, there are a couple of different types of farm mortgage loans. You’ll need to consider each type to figure out which would be the best option for you.
Agriculture real estate loans are offered through a private bank. You can use them to purchase a farm, bare ground, or building lots that will be used for agricultural purposes.
These loans will come with standard terms and you will need to go through the underwriting and approval process. Your local loan officer can help make sure you meet the requirements for this type of loan and help you apply for one.
The Farm Services Agency (FSA) also offers farm ownership loans. You apply for these through a local bank, but they are backed by the FSA. This type of loan may be a good option for people that might have difficulty qualifying for a traditional agriculture loan.
This could be due to inadequate collateral, lack of credit, or lack of financial equity.
How to Choose a Farm Mortgage Loan
Due to the differences between individual loans and lenders as well, some loans are better than others. You will need to consider a few factors to ensure you pick one that is right for you.
You need to make sure you choose a lender that offers competitive interest rates. A higher interest rate means you’ll pay more over the long term. So it is important to get as low of a rate as possible.
Some lenders allow you to choose between a variable or fixed rate. Fixed rates allow you to lock in your rate and know exactly what you will pay. Variable rates may be a good option if you hope to get a lower rate in the future.
Consider carefully which one will best meet your needs. Your lender may even be able to use estimated rates to show you how much you can expect to pay over the life of your loan.
If you are looking to apply for a farm mortgage loan chances are you don’t want to wait around too long. Perhaps you have a solid business plan or have already found the perfect piece of land. You need a lender that offers reasonable approval and closing times.
A local approval process makes this even more of a possibility. You should also try to get a loan that doesn’t require origination fees. This can help you save even more money. Flexible payment plans are helpful, especially if you are a first-time farm owner.
Finally, choosing a farm mortgage loan through a local bank will offer you the best experience possible. This will allow you to build a relationship with a local bank officer that can come to learn your needs and better help you through the mortgage process.
What You Need to Apply
Farm loans and land mortgages will require you to gather some information as part of your application. You will need two years of financial statements, which you can obtain from your bank.
You will also need three years of federal and state tax returns. You could also provide three years of profit and loss statements as an alternative. Finally, your application will require a legal description or address of the property you plan to purchase.
FSA loans require some additional information. You may need to provide a resume and business history. They may also ask for information about past government loans.
Depending on your situation, FSA loans may require budgets, financial projections, and five years of crop yield information.
Once you are ready to consider your loan options, you should set up an appointment with an agriculture loan specialist. They can make sure you have the correct documentation and will help make the process go as smoothly as possible.
Other Types of Farm Loans to Consider
If you are purchasing your first farm or buying into one, you’ll need more than just the land. Farms require equipment and other supplies to make them operational. Luckily, your local bank may also offer other agricultural loans that can help make it easier to get started.
Operating loans can help you get cash to pay operating expenses. This can be a good way to make ends meet until your crops or livestock can be sold. The application for an operating loan will require a projected income and expenses budget.
A term loan can be used to purchase equipment or vehicles. It can also be used to expand your business or pay repair bills. These loans will require a description of the purchased items and collateral that is being used.
Choosing the Best Farm Mortgage Loans
When you are trying to purchase a farm or buying into one, farm mortgage loans can help make the process easier. You just need to know the factors to look at when applying for one. Determine what works for you, then let your loan officer help you through the rest.
Contact redacted to get started today.
Photo by Timothy Eberly on Unsplash
