Financing option or programs for buying a farm?

[nathan104]

Ive hit a snag in the farm Im buying. Its 60 acres with an old 1940's farm house that needs a new roof, exterior paint, and some termite damage repaired. I plan on putting on a metal roof right after we close, and will do the rest myself over the next few months.

I was approved for my loan through Pentagon Federal Credit Union and locked in for a 30 year fixed rate of 4.875% with 20% down

Today I hit the snag.

Penfed told me today they would not be able to give me the loan because of some fannie guidlines set forth, yadayada that say they cant give a loan if the land value equals more than 30% of the total purchase price. Which this place is mostly land value. $180K purchase price, probably a $30K value on the house. The land by itself is worth more than the purchase price here.

After calling a few more banks locally, they all told me the same thing and the best thing I could find around here is a 5 year adjustable rate mortgage at a rate of 6.5% with 15% down. Other rates from different banks were 7.55% 5yr ARM with 20% down.

I am eligible for the VA loan guarantee, but from what the bank told me, it wouldnt go through as the VA would want everything with the house fixed before we close. I dont want to lay out all that money into a house I dont own. What happens if I put $10K into the house and the deal falls apart the day before we were supposed to close?

So, there has to be some better option out there to buy a farm than paying an ungodly interest rate and an adjustable mortgage. I had all the banks I called tell me that with the amount of acreage, I couldnt get a fixed rate mortgage period.

The down payment isnt a problem whether it be 10-20%, and I have real good credit. Im able to qualify for the loan amount no problem.

The bank that offered me the 6.5% at a 5yr ARM and 15% down said they would be able to work around the problem with the house and wouldnt require they be done before close which is good. But, the different between the 4.875% rate I was going to get with a regular loan and the 6.5% rate Im offered now is almost $170 a month! And thats before they raise it 5 years from now.

Id appreciate any help or ideas anyone can offer. It just seems incredulous to me that they make it so difficult to buy a farm when land holds its value much more than a house. This isnt recreational land, its pastures and a farm house and a barn and fencing and pens, etc. Ill be running cows and bailing hay and raising farm animals.

[salmonslayer]

We ran into the same problem recently when we bought our farm (1945 farm house...also needs new roof etc.). USAA and the VA pre-approved us but USAA only loans on single family properties zoned residential (our farm is zoned agricultural) which they didnt tell us in advance and as you found out the VA wants everything fixed prior to closing.

We had a lot to put down and we ended up finding a local vendor familiar with farm loans and got 5.25%; not as good as USAA or the VA at the time but we are still happy. Even at that and with putting about 60% down we had to submit all kinds of documentation to show where we got the money; i.e., 6 months of bank records, etc.

Its tough getting farm or rural property loans and you will probably have to put more down or look at smaller properties. There is just a high default rate on these kind of properties.

[livinzoo]

I'm working on trying to get a loan for only 9 acres. The realtor mentioned that could happen and said often times people get 2 separate loans. One with the house and say 2 acres and the other for the rest of the land. Not sure we will have to go that route.

[Wolf mom]

The first place I'd try is the seller. He'd be making money over and above the sellling price on the interest.

How motivated is he?

You can "sell" him that idea by letting him know that he will have this problem with anyone he sells the property to.
Show him that you were approved by the bank, but due to this issue, can't close.
Show him how much more he'd make carrying the mortgage than if he were to invest it in CD's today.

If you end up defaulting, he gets to keep all the money plus all the improvements you made. Thats good, but bringing up a default is chancy as it brings up a fear issue.

If you have a realtor, you may have to "sell" your realtor first, by doing all the "thinking' for them.

If you split the land, and try to get a separate bank loan on raw land, your down payment will eat up all your improvement money.

[marvella]

1. it's a tough market right now.

2. any lender wants to be sure that they are lending on a property that they can recoup their losses if for some reason the borrower forecloses. they don;t want to own a house that needs a roof, has termite damage, etc.

btdt. not for the foreclosure but the old house that no one wanted to lend on. no, because of tin roof, no because the comps were bad (no recent sales in the area to compare it to) no because it was heated with propane. no because it was on a dirt road. no because it was 19 miles from the nearest town. i had no idea they could find so many reasons to say no.

ended up doing a 5 year land contract with the owner. sold it 11 years later for double what i paid.

[nathan104]

Ive called around a bit more today and the 5 yr arm at 6.5% is still the best I can do. I just am scared that after 5 years, they can change the interest rate every year. But, I guess I can try and refinance in 5 years. They do only want 15% down and the others want 20%, and the closing costs are much less as everyone but them wants a 1% origination fee.

Its just crazy I cant get these people to do a regular loan. They are loaning me the money one way or the other so why not give me a good interest rate on a 30 year fixed term? Theyve already paid for the place, so what does it matter the interest rate. Ive got perfect credit, boguth and sold three previous homes, have good amount of savings/stocks/etc, steady income and have never missed a payment on anything. Its just insane.

Having the owner finance is not an option. Its all the kids selling the parents place and they justw want cash. They havent been very easy to negotiate with. Even thing that didnt affect them at all they wouldnt agree to. They all want their cut of mommy and daddys place. They even tried to take down the fencing on the place until I told them I would walk away. Anything they can get a dollar for that isnt in the contract they are taking. Im having to watch it carfully to make sure they dont do anything.

I really wish I didnt like this place so much. Its a run down small house that needs lots of work, all grown up, pastures all weeds right now, dead trees standing everywhere, fences messed up in lots of places. Problems with dealing with the sellers, problems with getting the financing. I wish I could just walk away. But I really love the land and where its at and how its set up, and its a very good price. Id regret it if I walked. Just a pain in the rear to get through all this.

[Lazy J]

you need to talk with an Ag bank, they are specilists in working with loans on farms.

Jim

[farmgal]

why 20% down? is this something new? I never heard of that kind of requirement unless theres a low credit score.

I seperated my land from the house mortgage(house and 5 acres) and I get the land(70 acres) for $1 contigient on the mortgage. thats how you have to do it.

[Jalopy]

try googleing Farm Credit Bank or Farm Credit system. We are in the midwest and we have our mortgage with Farm Credit services of America but the system in Texas I beleive is Farm Credit Bank of Texas. THey work from regional or district offices but they have a country home loan program for land and homes. Just a suggestion to try.

[MN Gardener]

I would try to separate the property and do a regular conventional loan. Worse case go with the higher rate, do the repairs and refinance with less acreage or with VA. Then you will not have to deal with an ARM.

[Rocky Fields]

Call your local FSA (Farm Service Agency) office about farm loans. Note: you will only be considered if you are planning on starting a farm operation.

[salmonslayer]

why 20% down? is this something new? I never heard of that kind of requirement unless theres a low credit score.

Nope its a new requirement apparently for rural property. We ran into that as well and our credit rating is about as high as it gets.

[rambler]

'Regular' lenders want cookie cutter identical loans. A house & small yard & everything fits into their plans, all the same, they can repackage & resell your loan to other banks.

See how well that worked for them the past year?

Anyhow, you need to go to a bank, credit union, or othere lender that deals with ag land. The places you are calling, or the way you are aproaching them, is putting you in tougch with house lenders.

You are not buying a house. You are buying land.

You need to find the folks that deal with land loans.

Different people, different agenda, different requirements.

The house lenders don't have a clue as to how to deal with you.

--->Paul

[chewie]

to do our place, our house was loaned on one acre, the rest of the place was then 'separate'. (16 total acres). and good luck with fsa, any of those govt types are pure evil!!

[Jalopy]

Please be aware that FSA and the Farm Credit system are two different entities. FSA beginning farmer loans are a source of last resort credit and they have a lot of restrictions, good for when needed ,but it doesn't sound as if the OP is in that situation. The Farm Credit system is designed to take on larger loans with a larger down payment. They have about the same restrictions and requirements of regular bank but are capable of tieing the land and home mortagage together. These are things we have and are dealing with currently and it is working great for our small cattle operation and our land and house mortage.

[ErinP]

I, too, would recommend Farm Credit Services. It's who we financed through, also. Though we had to have 40% down in order to do it.

Don't bother with the FSA Beginning Farmer programs. It's a joke.
You can't meet the requirements unless you have some serious backing from another source (aka, a parent, trust fund or lottery winnings). After that, you have to be able to guarantee that the ag. enterprise you'll be using the land for will be able to make the payments. Outside income won't count. You also have to have X number of years of experience in production agriculture.

We've looked into it extensively at various points in the past ten years, filled out paperwork, etc. The last time we did, about two years ago, the loan officer in our current, local FSA finally admitted that it wasn't really for beginners. It was for people who were already backed by another source (parents, grandparents, etc.) to get out on their own.

[tammy from wv]

Check with the people in your area that have farm loans and see where they got their loans. When we got our loan 14+ years ago there was only one bank in town that dealt with acreage. Our house was just an old double wide on 45 acres. The house was worth nothing. We paid 20% down. We got a 15 year adjustable rate mortgage that adjusted every 3 years. It could only go up or down a certain amount, never more than whatever that was. It has never gone up in the time that we have had the mortgage, only down. We are down to 1 payment, yeah!!!!!!! That was the only option we could find. Check with the farmers around the area.

[Lyra]

Unfortunately, the housing market has changed. The historical rehab programs are even drying up. Maybe you should downsize your homesteading plans. It would be a much wiser choice than to get in a position where you are uncertain about the future of your loan.