Hobby farms still need money even when they don’t aim for financial gains or
self-sufficiency for that matter. You can start a hobby farm using your own money from your savings, retirement fund, investments, etc. If your money is tied somewhere else and buying a property outright is not feasible, you can start looking at hobby farm financing and federal grants.
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Starting a Hobby Farm
Understandably, hobby farmers have full-time jobs and/or other sources of income. They tend their hobby farms, grow their vegetables and raise their livestock at their own pleasure.
Because there is no standard definition of a “hobby farm”, it’s often used alongside “homestead” which refers to a farmhouse and its related buildings. However, homesteaders farm for self-sufficiency.
However its usage, designating your farm as a hobby has tax implications. If you
engage in it as a hobby, the deductions you can apply for may be limited and should be itemized under Section 183 of the Internal Revenue Code.
Hobby Farm Financing
Getting a mortgage on a hobby farm that straddles between being residential and commercial because of its business potential can be challenging.
GSEs Fannie Mae and Freddie Mac do not purchase mortgages on farms, ranches and other agricultural properties. The Veterans Affairs requires the property to be an owner-occupied farmhouse first and foremost.
You can try USDA home loans that require the property to be lived in as a principal residence and located in a designated rural area. If you are buying a land, it should come with a house and not be used for income-producing activities.
USDA’s Farm Service Agency (FSA) specializes in farm ownership loans. It has an acreage requirement that depends on the average farm size of the county.
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If your property falls short of the applicable FSA acreage requirement and can’t be financed with traditional home loan either, there are specialist lenders that make hobby farm loans.
Loans on hobby farms can be up to millions of dollars and require 20% or higher as down payment. They can be fixed- or variable-rate loan products. Their repayment term can go as short as 15 years and as long as 30 years.
Lenders underwriting these loans consider debt-to-income ratio, credit history, assets and income, among other things. Rates vary so always shop and compare.
How about grants?
The Federal Government has grant programs for beginner farmers, small farmers, part-time farmers, and agriculture enthusiasts, as applicable. You can check Grants.gov for grant opportunities near you or apply for a grant.
Through the USDA Alternative Farming Systems Information Center, you can access relevant trainings toward sustainable farming available in your state.
With the help of hobby farm financing, you could turn your hobby farm into a serious business in the future. Continue learning about farming and how you can sell your agricultural products to the market. When that happens, you can claim for business-related tax deductions and use this income to qualify for loans.
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