Buying New Farm Land

hamons(Kansas City z5)February 18, 2011

Well, we are in the exciting phase of searching for land within a fairly large radius around our current city - Kansas City.

One thing I feel fairly uncertain is about financing. When we sell our current property -- we will be able to pull out around $100k in equity.

We are looking for property with 50 - 75 acres and find most of the properties we are looking at are in the $150 -200k range.

So, we will need to borrow $50 - 100k to buy the property. Depending on how much we decide to hold back for startup capital.

I am finding there is a big difference between loans given for farm property and a traditional mortgage. Calling around it seems that there are very few national mortgage companies that write farm loans. So it'll be up to the local banks. It appears rates are much higher for these loans -- currently around 6%?

I cannot qualify for a FSA loan because i do not have prior farm management experience.

The final stumbling point that I haven't quite figured out -- is how banks will qualify me based on future farm income. I will be moving a long distance and starting out with the assumption of trying to make it on farm income alone possibly supplemented with odd jobs using my equipment running experience. I have access to skidsteers and Meyers tree saws used in pasture clearing operations. However, will not have any guaranteed income to prove being qualified.

Has anyone been in a similar situation and how did that work out? Any tips? Are the above info and assumptions I've made in line with what you have found?


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Beeone(4 N. Wyo.)

If you are into truck gardening, 50-75 acres might be enough to make a go of it as a sole income. Otherwise, you won't be able to survive on that acreage.

You will probably find it very hard to get financing unless the seller is willing to finance on a contract for deed. At the time of the purchase, you will be essentially unemployed and cannot provide a history of farming or a high probability of future income for a lender to qualify you on.

One of the better places to go for farm financing is Farm Credit. Farm Service Agency, through USDA Rural Development has financing for beginning farmers, however you may need to show some farming experience, while at the same time if you show more than about 5 years of farm income, you won't qualify as a beginning farmer.

What most people seem to do is use an off-farm job as a primary means of support, possibly working for another farm, then farm on the side and weekends. If things go well, they will expand the farming until they can make a living at it and cut back on the off-farm jobs. But, having the off-farm job helps provide the stable income needed to get the initial mortgage on the property. Quite often a spouse will hold an off-farm job permanently to provide and stabilize the family income and the farm income will mostly go to support the farm and debt payments.

If you are not experienced in farming, you will pretty much be having to get degrees in biology, chemistry, animal science, plant science, soil science, mechanical engineering, business management, mechanics, veterinary medicine, entomology, microbiology, marketing, and possibly labor management in the first year while at the same time working a full time job (your farm). It isn't an easy task. I'd go in slowly and build up. Good luck.

    Bookmark   February 19, 2011 at 3:47AM
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oregonwoodsmoke(5 OR Sunset 1A)

Around here, as long as the property has a decent house on it, you simply get a regular home mortgage on the house.

You can contact the Farm Bureau and ask for advice about financing a farm. They would know. They are going to be just about the only place where you can purchase insurance for a farm.

In this economic climate, no bank is going to qualify you on future income for a previously nonexistent business for a person with no experience.

If you've got cash for 1/2 down, I suspect you will have absolutely no problem with finding someone to owner finance.

    Bookmark   February 19, 2011 at 4:05AM
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lily51(OH 5)

I would ditto beeone.

    Bookmark   February 20, 2011 at 6:11AM
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Another approach would be to buy a smaller piece of land that you can pay off, avoiding interest payments entirely. If things go well, buy or lease additional acreage in the future.

    Bookmark   February 20, 2011 at 7:50AM
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Traditional mortgages are not just for land ... I assume though you are planning on building a house?

And no one will qualify you for a loan based on future unknown earnings. People qualify for loans based on a 2 year history of earnings.

Also, traditional lenders will not lend on working farms, even if you have a 2 year history.

I read your other post and am really curious how you plan on supporting yourself when you quit your job? You should keep your job, buy property, start small ... it will be years before you will make a profit .. if even then?

Do you have any experience running a business? Farms are businesses. Do you have enough capital besides the 100K, for expenses for the 1st couple of years to survive on? Any money you take it will be needed for expenses, it's not income until you cover your expenses.

Sorry I don't mean to sound harsh, but there are plenty of farmers who have been farming their entire lives who are struggling financially. You don't seem to have a very well thought out plan. Do you have a written plan and budget?

    Bookmark   March 3, 2011 at 2:15PM
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