Farm Mortgage Loan
The United States was founded as an agrarian society; fully 90 percent of colonists were farmers. And while only 2% of the U.S. is now actively engaged in farming, agriculture is still big business in America.
Historically, small family-owned farms provided food for the family and the market. Today, it is still an industry primarily fueled by thousands of family- or individually-owned farms, but those farms are producing more than ever before. These hardworking individuals manage to provide over 80 percent of the food on American tables as well as helping to feed the world.
Between 2009 and 2016, U.S. agricultural exports reached 1 Trillion dollars – the strongest period of ag exports in U.S. history. In 2016 alone, the U.S. exported over 129 billion dollars in agricultural products. As populations grow, the demand for food grows and the agricultural industry grows.
However, the face of the American farmer is changing. The average age of the principal owner-operator of our country’s farms is increasing. And while many farms are transferred to the next generation, being handed down from parents to children, other farms are being sold – and often to non-traditional farmers – women and minorities.
There is a growing number of non-traditional farmers buying and starting new farms or purchasing existing ones. But one thing has not changed – farmers need land, quality land – and that is one of the largest financial outlays for a farmer.
A farm mortgage loan is available whether the farmer is new and just getting started or an experienced owner-operator looking at expansion. There are federally backed options for loans, as well commercial banks and other lending institutions that offer at least one type of farm mortgage loan.
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Farm Mortgage Basics
A farm mortgage loan backed by federal funding usually falls under the guidance of the United States Department of Agriculture (USDA). Founded in 1862 by an act of Congress, and signed into law by Abraham Lincoln, the purpose of the USDA was to follow the interests of farms and the farming community.
“The People’s Department”, as Lincoln referred to it, was elevated to cabinet level in 1889 by Grover Cleveland. Today, the USDA still assists farmers and the general welfare of American citizens through its work in agriculture, research and natural resources conservation.
The Farm Service Administration (FSA), a department of the USDA oversees the funding programs for farmers. The FSA is set up to assist all farmers, but it is a particularly important source for small to mid-sized farms and minority farmers. Women and minority ranchers are an historically underserved market and the FSA recognizes their needs.
Minorities would include African Americans, Hispanics, Alaskan Natives, and Asians as well as others. These groups have traditionally been challenged in obtaining a farm mortgage loan.
As part of its mission, the USDA has chosen to nurture this growing segment of farm owner-operators through education and financial assistance. This has helped increase the number of women and minority farmers and their success.
Not only does the FSA assist all farmers and ranchers with its education and research, it also has a more hands-on aspect providing help with its trained agricultural agents. Starting or existing farmers can obtain assistance determining the land needs for crops and/or livestock, as well as capital.
The FSA has several programs that provide or assist with a farm mortgage loan. Here are a few of the programs offered or administered by the FSA, one (or several) of these loans may help provide the assistance you need for purchasing a farm or expansion.
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The Microloan Program administered by the FSA offers two types of loans, each capped at $50,000, but with no minimum loan amount. There is a Direct Farm Ownership Microloan to assist with ownership and the Direct Farm Operating Loan to assist with operating expenses.
The Direct Farm Ownership Microloan can be used as a down payment on property and can be combined with another type of farm mortgage loan. These microloans are focused on the needs of new farmers starting small operations; truck farmers; niche farmers who produce hard-to-find items such as an organic food, specialty mushrooms or lavender; and the traditionally underserved farmer such as women and minorities. It is also a source of capital for farmers using alternative growing methods such as hydroponics.
Direct Farm Ownership Loan
The FSA also has a program called the Direct Farm Ownership loan. For a qualified buyer, this farm mortgage loan can cover 100 percent of the financing of a farm purchase.
There are three types available based on the needs of the applicant(s): regular, joint financing, and down payment. The USDA funds these loans as part of the expenditure of its yearly budget appropriated by Congress.
The USDA agency services and funds these loans through local Farm Loan Officers and Farm Loan Managers. Not only can these loans be used for an initial purchase to start a farm, they can be used to buy an existing farm, to fund an expansion, improve outbuildings or the farm dwellings, to purchase land easements, and to help preserve the land through soil and water conservation. You may also use the funds from this type of farm mortgage loan to make a down payment or pay closing costs.
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Guaranteed Farm Loan Program
The third major program of the FSA is the Guaranteed Farm Loan Program in which the loans are owned and serviced by a USDA-approved commercial lending institution. A loan made through this program is guaranteed by the USDA.
There is also another category under the Guaranteed Farm Loan Program called the EZ Guarantee Loans. These loans can be made for up to 100,000 dollars and the application procedure has been simplified for easier processing. Both of these programs can be used for a farm mortgage loan for land purchases, expansion and improvements.
Commercial banks and lending institutions are also in the business of making farm mortgage loans. These businesses range from a local bank with loan officers that live and work in the agricultural community they serve, usually having an in-depth knowledge of the people and the business climate of the area, to large banks with agricultural specialists that have the range of skills needed to understand the complexity of farming as a business.
These departments may serve the entire business of farming or may specialize in either large corporate operations or the family- or individually-owned farm. There may also be lenders that specialize in one area such as cattle ranching.
Loans from a commercial institution can be a USDA-guaranteed loan, such as those obtained through the FSA Guaranteed Farm Loan Program. Or it can be a more traditional loan processed, funded, serviced and owned by the lending institution. These loans will vary – as do all loans – in interest rates, payment schedules, late-payment penalties and grace periods.
Shopping For A Farm Mortgage Loan
Farming is still a vital part of the American business landscape with family- or operator-owned farms accounting for 90 percent of U.S. farms and ranches. A
farm mortgage loan is just one of the sources of capital a farmer can tap to manage the business toward profitability.
When shopping for a farm mortgage loan it is best to investigate different types of loans offered by more than one institution. Finding the right loan at the right price that suits the farmer’s needs can save the borrower thousands of dollars over the
life of the loan.
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