A Quick Guide to the Hobby Farm Loan

Not all farms produce income. Today, many people want to start a farm just for fun, to grow their own food rather than buying it, or even to supplement their income. Whatever the reason, you may be eligible for a hobby farm loan. Keep reading to learn the tips and tricks to getting approved.

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What is a Hobby Farmer?

First, let’s look at the definition of a hobby farmer. If you farm, but you don’t do it for a living, you may qualify. Hobby farmers have other occupations that don’t coincide with farming. They use farming as their ‘hobby’ in their free time. Some hobby farmers do make a side income off their hobby farm, but they have other full-time employment to support them.

What are Hobby Farms?

Hobby farms can have many different faces. Generally, they are between 40 and 100 acres and they use sustainable agricultural practices. Hobby farms still have business plans and a vision. They must also abide by all zoning laws and have a target market (if this is your intention). In short, they require as much work as commercial farms and could require as much capital.

Qualifying for a Hobby Farm Loan

Hobby farm loans come from individual lenders rather than Fannie Mae, Freddie Mac, or the government. Each bank has its own requirements, but most banks operate under the Qualified Mortgage Guidelines, which means:

  • You must be able to prove your income beyond a reasonable doubt
  • Your debt ratio must not be greater than 43%
  • You may need to prove any income that you make or plan to make from the hobby farm
  • You may need reserves (extra cash on hand that sits idle unless you have an emergency)

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As far as the property itself, lenders must find qualified appraisers that understand hobby farms. Since it’s a relatively new topic, not many appraisers have this qualification, but going through a lender with hobby farm experience, you should find a qualified appraiser that can help.

The largest issue appraisers have with the appraisal itself is finding comparable properties. Hobby farms take on all shapes and sizes, which mean finding even one comparable property, can be difficult. Many appraisers have to go out further than the standard distance and/or use farms currently listed for sale as comparison, even though that’s not the norm.

Finding financing for your hobby farm may be easier than you think. Hobby farms can be a great way to build a sustainable farm in your area, make supplemental income, and/or just give yourself something to do. Finding a qualified lender with experience is the best way to ensure that you have a quality experience getting your hobby farm loan.

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