Getting to Know USDA’s Farm Ownership Loans

Although the farming business has shrunk in popularity in the 21st century, with majority of the population pursuing more “modern” careers in urban areas, it remains and will definitely remain in the background of every civilizational success.

Today, farm and ranch families constitute only 2 percent of the total population in the US. Yet, their contribution to the economy cannot be undermined. $133.1 billion worth of agricultural produce in the country were exported globally in 2015. Agricultural income make up more than 5 percent of the country’s GDP. And one US farm alone feeds 168 persons on a yearly basis.

Recognizing their contribution to the overall economic health of the country, the federal government continues to create incentives and opportunities to help American ranchers and farmers continue their efforts, even encouraging new entrepreneurs to join the mix and experience the rewarding work that is unique to working closely with nature.

Your key to farm ownership

One of such opportunity honors beginner ranchers and farmers or those individuals who want to start a farming business even without prior operation experience.

Backed by the US Department of Agriculture, the Farm Service Agency offers what is called the Direct Farm Ownership Loan. This program has no current or previous farm ownership requirements and offers 100 percent financing.

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Here’s a quick run-through of everything you need to know about the program:

For what purposes can I use the Direct Farm Ownership Loan?

You can use the loan proceeds to:

  • purchase a farm or a ranch
  • expand current farm or ranch size
  • make a down payment on a farm or ranch
  • buy easements
  • build or improve existing farm or ranch buildings and improve farm operations
  • promote the conservation and protection of soil and water resources
  • pay for the closing costs of a loan

Are there different types of Direct Farm Ownership Loans?

There are, namely: a) Regular or Joint Financing and b) Down Payment Loan

Regular or Joint Financing

  • also called participation loan
  • finances up to 50 percent of the property’s purchase price. A state program, the lender, or the seller of the farm or ranch is the one to provide the balance of the loan funds with or without an FSA guarantee

Down Payment Loan

  • exclusively available to beginning farmers or ranchers and/or minority women applicants
  • does not provide 100 percent financing and require borrowers to shell out 5 percent of the farm or ranch’s purchase price. Applicants must not own more than 30 percent of the average size of the farm at the time of application

What is the maximum loan amount of the program?

For the Joint Financing or Participation Farm Ownership loan, the maximum loan amount (MLA) is $300,000. For the Down Payment loan option, the MLA won’t exceed 45 percent of whichever is the lesser of:

  • the purchase price
  • the farm or ranch’s appraised value
  • $667,000 which is subject to the Direct Farm Ownership dollar limit of $300,000

How much interest is charged on the loan?

The rates are calculated and posted every first of the month. The rate followed is whichever is lower in effect at the time of closing or approval.

How long is the repayment period of the loan?

For the Joint Financing Loan, the maximum allowed years of payment is 40 years while for Down Payment loan, the repayment period is 20 years.

How about credit scores?

The FSA does not use credit scores.

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