Farm Real Estate Loan

Farm real estate loans are provided to beginning and experienced farmers through conventional methods and through government-funded real estate programs. Government-funded programs offer financing to those farm owners who cannot qualify for conventional contracts because they have insufficient financial resources. Government backed funding also provides assistance for established farmers who have suffered financial losses due to natural disasters, or whose resources are too limited to gain any profit in their farming operations. A farm real estate loan allows for a 95 percent guarantee of funds in case of default to the lender.

The lender services the contract for the entire term. All contracts must meet certain governmental qualifications to be eligible for the guarantee. Farmers interested must apply through a participating lender, such as a bank or credit union. The government may make direct contracts to those farmers who do not meet the qualifications necessary for a guaranteed farm real estate loan; however, the funds are limited and the borrower must attend a series of credit, debt, and real estate counseling before the proceeds can be dispersed.

The money can be used for the purchase of land, livestock, equipment, feed, seed, and supplies. It can also be used to construct buildings or make improvements on property. The maximum amount available for borrowers who are starting from scratch is $200,000. Farm real estate loans can be stretched out to 40 years, and interest rates are based on the government farm index. These contracts are for a beginning farmer with a down payment of 40 percent, is limited to a 15 year term life, but offers extremely low interest rates, sometimes as low as 4 percent. For those farmers who already own the land, their operating costs can be funded through a direct operating contract with a term of 1-7 years.

The government also provides low interest disaster/emergency farm real estate loans covering 100 percent of the assessed value and up to $500,000. Interest rates are below 4 percent, and the borrower has up to 40 years to pay it back. For contracts serviced by a traditional lender, the maximum loan amount is $813,000 with a 40 year repayment term. There are no prepayment penalties, and the interest rates hover around 4 percent. Those interested in farming and choose to utilize a direct government loan or a guaranteed loan, should remember that it still is a loan that must be repaid. Psalm 37:21 says, "The wicked borroweth, and payeth not again." To honor God with our finances, we must pay back everything we borrow. We need to remember that principle when deciding whether or not to take out a farm real estate loan.

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