You want to secure a loan for your farm, but are unsure of where to start? Do you need the same type of paperwork you would need to secure a mortgage on a home? What else is required?
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We help you discover the answers to these questions below.
Keep in mind, though, that every farm loan, just like every mortgage, is unique. The exact needs required for your paperwork will depend on your situation and the lender you choose.
The Loan Application
As you might have guessed, your process starts with a
loan application. You must supply the application so that the lender knows you are looking for financing. This helps the lender get a glimpse of your financial situation and determine how much money you need to borrow. Make sure you complete the application in its entirety, answering all questions honestly.
At the very least, the lender will need the last three years of your tax returns. This allows the lender to see your income over the last three years. Since farming can be such an up and down type business, the lender will likely take a 2 or 3-year average of the income reported on your
tax returns to determine your monthly income.
Other Income Documents
If you work for someone, you will also need to provide your W-2s for the last 2 years. This shows the lender how much your employer paid you over the year. The lender will also need proof that you currently receive the income. You can prove this by providing the last month of your paystubs. For example, if you are paid weekly, you would provide your last 4 paystubs. If you are paid every other week, you would provide the last 2 paystubs.
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If you plan to use any other type of income, such as social security, child support, or alimony, you will need to provide proof of the income with the award letter (court ordered in the case of child support or alimony) and proof of receipt, which you can prove with your bank statements.
Finally, you will need to supply a balance sheet. If you don’t already have one, your lender can help you complete it. The balance sheet will show the lender your
assets and liabilities and what your bottom line looks like when it’s all said and done.
Proof of the Sale
If you are buying a new farm, you will need to provide your executed purchase contract along with the listing sheet that includes the legal description of the property. Along with the contract, you will need to provide proof of any money you already put down (earnest money). You should keep a copy of the check that you write for proof.
You will also need to supply the lender with the names of all parties involved in the sale. For example, if you are using a realtor or attorney, the lender will need their contact information.
Proof of Funds
Chances are that you will put money down on the farm, in addition to the earnest money. The lender will need proof that you have the funds. You will need to supply the lender with at least the last two months’ of bank statements if the money is in checking or savings accounts.
If the money is in an investment, such as stocks or bonds, you can provide your latest asset statement showing the asset’s value. When you sell the assets, though, you will have to provide the lender with proof of the sale and receipt of the funds. You will also need to document that you deposit the funds in the account that you are using for the purchase.
Applying for a farm loan does require plenty of paperwork and discussions with the lender. Make sure that you shop around with several lenders to ensure that you are getting the best deal for your farm loan needs.
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