"Farm" Financing

westend · #1 07/25/12, 08:29 PM

I've had a very fun day on my way to farmstead living....

I have a nice mortgage company that I've worked with for awhile. In their mind I'm "house" shopping. And on my parcel of choice, that the value isn't in the land, its in the "improvements". True absolutely for a "city purchase". Sometimes true on the farm.

I countered, no, the value is in the parcel in this case, not the house (a 100yr old hodgepodge) and I don't want the house for anything other than the old growth lumber that's in it.

Much head scratching ensued. Cue quizzical looks.

I patiently explain that people buy rural land with financing and crappy houses every day. And I have a healthy down payment, fat day job, and great credit score... They countered that seller must "fix" everything (septic, wiring, etc)... before sale...I said, nope, don't want him to "fix" anything. "Cash only, then" they say. Then I used the word "farm" and that really did it.

LOL. I had my lightbulb moment... I'm using the wrong tool on the problem. Gonna find me some rural financing in the morning.

Thought I'd call FSA/USDA... any other suggestions. (Still digging through all the HT archives). Thanks!

MichelleFL · #2 07/25/12, 08:40 PM

Are you planning on buying land and building a house, or not building on it at all? Just curious as I am looking to buy some acreage in the future as well and also looking forward to someone answering your post.

Forestdude · #3 07/25/12, 08:54 PM

From my recent experience, I've learned that I went wrong on financing my land from the start. I'm not a farmer, and my land is mostly all timber, but apparently it's still considered a "farm". Due to the fact that timber is a crop. I am working on refinancing with a farm credit bank to a 10 yr. fixed rate at 4.25%. I'd recommend on checking with a "farm credit" institution for a loan. Good luck!

westend · #4 07/25/12, 09:07 PM

This will be my primary residence...But I've been focused on the finding the right land first and then second, if it has a decent livable house, great, if not I am more than happy to do a "radical remodel" or a rebuild on a small 10-20 acre parcel.

Found a nice 13.9 acre mix wood/pasture. Perfect to rehab the pasture back into true pasture and hay --even still has the original big red pole barn in great condition (previous owners kept a good roof on it).

Intend to build/rebuild and have small farmstead activities and slowly transition out of my full time corporate job in the five to seven year time horizon. My conventional lender doesn't understand why I don't want to bother with fixing or tearing down someone else's fixes.

And the word farm just didn't compute! :-)

(Thanks Forestdude...makes me feel like I might be on the right track)

PaulNKS · #5 07/25/12, 10:30 PM

USDA has startup loans for new "farmers".

Personally, I would recommend you check out Farm Credit. They used to be known as The Land Bank in the old days. The only thing they deal with is ag land. They don't typically loan on houses, just land. But, if the land alone is worth more than the house, they may loan on it.

We've used Farm Credit a couple times for short terms (10 years at a time). They were very easy to work with. I'll relate our two stories.

The first... we bought 160 acres in early 1997. Banks wouldn't loan on unimproved land. This 160 was coming up on an auction. The auction was on a Saturday. On Friday, we called Farm Credit. We gave him the information over the phone. He put us on hold for about 5 minutes. Came back and told us to go buy the farm and call him on Monday to tell him how much we spent.

The second time, we again tried the banks on a 90 acre parcel. No go. They wouldn't even talk about it. So, we called our same guy at Farm Credit. He didn't hesitate. He told us to go to the auction and call him on Monday.

It really was that easy. After the sales, we went in and signed the paperwork...

Now... what will be the deal breaker for some. You are required to buy one share of stock. That was $1,000. We were required to keep two payments on deposit with them. Since we had it set up for two payments per year, that meant we had to have a full year's payments on deposit. In addition to that, we had to put down 30%. The 30% is common on ag land that is anything over 30 acres.

With Farm Credit the terms were easy. We could set it up with payments due once per year, twice per year, quarterly, or monthly. Since we sold calf crops twice per year, we had our payments set up for Jan 1 and June 1 of each year. The 160 acres was set up on a 30 year amortization with a 15(?) year balloon. The calves paid it off in 10 years. The 90 acres (bought 18 months ago) was set up on a 30 year amortization with a 15 year balloon.

Even though Farm Credit says they will not loan on a house, when we talked to our man, and asked about building a new house on one of the farms and borrowing short term, he said he would find a way.

So, I think they are easy to work with and they really went out of their way to make it a good and an easy experience for us.

westend · #6 07/25/12, 11:13 PM

Thank you! This really got me headed down the right path tonight. Northwest Farm Credit, part of the Farm Credit system, looks like they might have just what I need.

Really appreciate all the help!!

Lazy J · #7 07/26/12, 07:18 AM

Don't work with a "Mortgage/Finance Company" for farms or land, they do not have a clue. Instead work with a local bank, credit union, or Farm Credit Services.

westend · #8 07/26/12, 03:35 PM

Yep. It's a learning process!

Had a great conversation with Farm Credit Services. Just posting for those in this process --really easy to work with and yes, they do have loan products that cover purchase + construction. The bottom line is that they do an apprasial based on the construction plans and the land, set a new value and then calculate the loan to value based on that new number. For example... If the appraised value with the new construction is $200,000...your total loan can be no more than $160000 or an 80% loan to value ratio. In some cases they want a 70% loan to value.

I also did find out that the USDA FSA has some great farm purchase programs for young farmers who have been farming for three years and are looking to purchase something. I didn't qualify for that but others might.

Taking the next step to write the purchase offer and give that to the seller tomorrow. Adding in contingencies around inspections, access rights, and water and mineral rights.

westend · #9 07/26/12, 11:49 PM

Whew. Offer goes to the seller in the morning. Well under what he's asking because its been on the market for two years. Not sure what I'll do if he says yes! LOL

PaulNKS · #10 07/27/12, 12:20 PM

Good luck!
Keeping my fingers crossed.

westend · #11 08/01/12, 10:20 PM

So far, the negotiation continues! I have talk the seller down a full $39,900. We are currently $15,000 apart. I countered last and he's thinking about it. Hoping he doesn't walk away and comes down a bit more. One way or the other, I'll know by Friday!! Getting a little nerve wracking. And this is just the first step! Inspections, convincing the bank to carry the loan, builder bids, and all the rest just around the corner!

westend · #12 08/03/12, 11:13 PM

BIG NEWS Tonight. The seller has agreed to my offer as long as I toss in the 50 or so metal T-posts in the barn. 20% below asking. 13.9 acres, farmhouse ready for radical remodel. Ag zoning. Seasonal creek. Well and District water. Close enough to commute into the office (just). End of a county dirt road.

Thanks for all of your help!!

11679341_11_2 | Flickr - Photo Sharing!

Mironsfarm · #13 08/04/12, 07:32 PM

good job congrats on the new farm pictures look like a great spot

lurnin2farm · #14 08/05/12, 05:42 AM

Looks like a great place. Congrats.

PNWKatie · #15 08/05/12, 09:25 AM

Thanks for posting your progress on this! Hoping to buy acreage eventually and it was great to learn some places to go for the purchase/financing. Congrats on your new place!

Pony · #16 08/18/12, 11:35 AM

Yes, thanks so much for posting your experience!

All the best to you on your adventure!

westend · #17 08/20/12, 03:25 PM

Farm financing is going to give me gray hair. Even with 20% downpayment which is serious money out here, and a very healthy paycheck, and aged funds, it's down to one and only one POSSIBLE option to finance a land purchase. Everybody else wants 30 to 50+ percent down -- $80 to $105,000 dollars. Yikey.

The market has turned or is turning --there are now multiple offers on the parcel I'm haggling on, but the banks are still stuck in market comparables that are against what has happened the last couple of years --which is peanuts, foreclosures, shortsales, etc.

Really want this to come together. Qualified to purchase a city house for 2X the value of this land, and yet am having a helluva time locking in financing for the dirt and dirt + construction is impossible because the value of the brand new house would be based on the crappy market comps from the last several years not against other brand new houses --a total Catch-22.

If I can't get financing with the money I've got in the bank and the job I've got, I don't know how anyone does.

Welshmom · #18 08/20/12, 05:05 PM

I hear ya, westend!
Financing is giving me gray hair, too, but I'm in a different boat.
Bought a home and outbuildings in 08, on 8 acres. Got a 30 yr. fixed.
Well, rates have come down plenty since then, so we're looking to refinance. Our payments could be almost cut in half!

BUT.... along the way, we raised some pigs, and filed a schedule F with the taxes to declare the income. NO ONE will issue a 30 yr. to us because of the schedule F....doesn't matter that we only have 8 acres, or that we still have the same town jobs with steady income and good credit. The best we were offered was a 5 year balloon with no interest cap...no thanks!

Totally unrelated to your situation, I know, except that we are both suffering from this ridiculously tight credit era. How come people who can't even make their payments are being offered credit, but folks like us who can and will and have paid can't get a decent loan!

westend · #19 08/20/12, 05:48 PM

Doesn't help that I've got the new person at Farm Credit Services... she seems to know very little about construction and doesn't seem to keep her facts straight which bugs me.

We just chatted on the phone and she said no to the financing because "we can't financing it as land because there is a livable structure on the property". I said, no there wasn't because said structure had no septic system and was deemed condemable by the inspector. "Oh, I guess I had forgotten you told me that"... Sigh.

So she's going back to her figures and back to underwriting again....

And Welshmom, I get it. As a business person this is driving me nuts because there have to be thousands of people --good credit risk kinds of people, with collatoral, who are great bets and low risk money for the banks, and yet, no joy. Amazingly dumb.

PaulNKS · #20 08/23/12, 12:46 PM

You can always talk to a different Farm Credit office, or ask for a new loan officer at the office you've been dealing with. There is no reason you shouldn't be able to easily get that loan based on the facts you've given us.

westend · #21 08/23/12, 09:00 PM

Well, Farm Credit Services decided to count my expensive city rent as debt, like a mortgage, not rent. And even offering to show the reduced rent (I'm moving) didn't wash because they go by current. Also instead of factoring just total debt, they counted my monthly one credit card payment as 5% of total. All got crazy.

Then they did conditionally approval the purchase plus loan, but, the loan would be dependent an building plans and appraisal, which they said would take as long as 60 days for them to vet, which won't work, because my seller has a cash offer waiting behind mine. Either I hit the closing date three weeks from now or, nada.

And, turns out they were going to base their appraisal of the new construction on comps from the last two years, despite the fact there are no market comps (little has sold, and what has is largely short sales and foreclosures). So a total catch 22.

All this despite a full 20% down and another 7 months in reserve. Remarkably frustrating.

So... I went hunting deeper. Found a local bank that will lend on 25% down ....painful. But, I scraped the 25% down together (sold everything I could and borrowed some) and signed the contract for a smaller rent payment on my close to work apartment. They are going out to take pictures of the place tomorrow and do their own assessment of value.

Bottom line, I'll know tomorrow or Monday.

Oh, and want some more evidence about corporate types going country en mass lately... Who do you think is lined up behind me to buy this 14acres, behind a ridge, at the end of a dirt road, with other small homesteads as neighbors... For over $200k in cash?

Yvonne's hubby · #22 08/24/12, 08:42 PM

Quote:

Originally Posted by westend

Thought I'd call FSA/USDA... any other suggestions. (Still digging through all the HT archives). Thanks!

Good luck with that... I worked the game for 11 years with nearly all my sales dealing with rural property. I was NEVER able to find a source through the secondary markets that entertained more than five acres and 90 percent of the value had to be in the house!

Local banks, and owner finance was the only source of financing we could come up with. I have heard stories about VA, USDA and other government funding but was never able to actually find it.

Our local banks have some pretty tough requirements. good c rating, minimum 20 percent down (but that was only if they knew the person personally), 2 years on your current job, debt to income ratios varied with the bank involved. Quite often my broker or I would purchase the property and owner finance the property to the customer in order to make it work.

westend · #23 08/28/12, 08:03 PM

HEY!!!!

The bank said YES. Today, conditional approval came through.

Local bank, who I met with in person, 25% down. The deal is contingent on an independent appraisal -- rules from the Feds. But this was a a huge, huge hurdle to cross.

The bank said yes, big step forward!! And now there's real hope the place will be mine

old school · #24 08/29/12, 05:55 PM

God bless the farmer and the working man!!!!!!!!!!!!1

Welshmom · #25 08/29/12, 06:25 PM

Congratulations and good luck with the appraisal!
Keep us updated!
What kind of interest rate are they offering?

westend · #26 09/09/12, 10:16 PM

So bummed. The bank needed more time to get the appraisal done, which would have required the seller granting an extension on the closing date....instead he backed out of the deal. He went with the full cash second offer. Wasted a lot of time, learned a lot, and am accepting that it wasn't meant to be. Sigh.

PaulNKS · #27 09/10/12, 07:29 AM

Sorry to hear that.

**Terri** · #28 09/10/12, 11:09 AM

*IF* the Farm Credit thing falls through, and you must deal with a bank again, you might try the phrase "I want to build new"!

That is something that banks do understand, though they might or might not want to loan you money on it! Alas, it is true, we needed the realtor to tell us what bank would loan on the land!

PaulNKS · #29 09/10/12, 02:46 PM

I'm going to bet that one of the major reasons sales fall through is the buyer not having his/her ducks in a row before making an offer and trying to buy. Get your financing lined out first. Then go buy.

Our two largest farms (160 and 90 acres), we called on a Friday (before the Saturday auction) and gave the information, got approval, and bought the farms. It wasn't the same auction, but the same circumstances.

It seems most people I hear talking that had a sale fall through was because the buyer didn't have their financing lined out before finding the land.

westend · #30 09/10/12, 08:24 PM

No. It fell through because the financing required a land appraisal and the approved appraisers were backlogged and couldn't get to it for over 3 weeks.....and the seller had a second higher offer. Even if we had ordered the appraisal the day after the offer was accepted I would have still needed to ask for an extension of a few days. We needed ten, he said no because he had a cash offer, who bumped up their offer 2x. They intend to build a very nice second home recreation place on the property.The rules have changed significantly in the last year --two times during this process the banks received updated requirements from the Feds.