How to Afford Your Dream (Rural) Property With the Right Financing Option

Financing rural land, whether for a farm or homestead, can often feel like trying to navigate a corn maze.

Between self-financing, rural land loans and government grant programs, there are plenty of options available to those seeking to secure rural property for their homesteading or farming dreams.

Self- or Owner-Financing the Property

When acquiring new rural land, self- or owner-financing are two options worth considering.

If cash is readily available, it can be used to purchase property, farming equipment and other homestead related items.

On the other hand, owner-financing, also known as seller financing, offers a more flexible, private option. In this arrangement, the buyer makes payments directly to the seller over a predetermined period of time.

Consider a Farm or Homestead Loan

A farm or homestead loan is another option for those looking to finance a rural property. Loans provide the necessary funds to purchase land, equipment and other essential farming needs.

To learn more, representatives from Farm Credit Mid-America and Rural 1st shared the types of loans available, and what a borrower needs for the qualification process.

Farm Loans

According to Gary Book, director of retail credit underwriting at Farm Credit Mid-America, financing tools are available for young and beginning farmers.

At Farm Credit Mid-America, a wide range of agricultural loans are offered to help farmers in 391 counties in Arkansas, Indiana, Kentucky, Missouri, Ohio and Tennessee. Agricultural loans offered include farm real estate loans, operating loans, farm improvement loans, livestock loans, farm vehicle loans, leasing and equipment financing.

“We believe that the future of agriculture depends on a financially secure generation of young and beginning farmers,” he explained. “The Growing Forward program helps reduce the barriers of entry for first-time farmers by providing access to farm loans and financial education opportunities they need to build a thriving operation.”

To participate in the Growing Forward program, farmers must have less than 10 years of farming experience, complete a loan application, submit a five-page business plan and attend at least one Know-to-Grow conference.

Rural Loans

For the aspiring homesteader, Rural 1st offers four loan options:

• Land Loans: Financing for purchasing undeveloped land for future homes, recreation or agriculture.
• Lot Loans: For purchasing residential lots, perfect for building a home.
• Construction Loans: Financing for building a new home in a rural setting.
• Rural Home Loans: Mortgage options designed for rural homes, including properties with significant acreage.

“Ultimately, the type of loan depends on what you want to do with the property in the future,” Anna Young, senior loan officer with Rural 1st, explained. “Are you going to build a house? Are you using the land for recreational purposes only? It all starts with a productive conversation with a loan officer to determine the best loan product for your needs.”

How to Qualify for Financing

To be eligible for a loan, farmers and homesteaders must meet certain criteria.

For example, a Farm Credit Mid-America loan requires a farmer to live in or have a farming operation within the territory they serve and plan to produce at least $500 in annual farm income.

“We’re committed to helping farmers access the financing they need to build and maintain thriving operations of any size,” said Book.

To qualify for a loan with Rural 1st, Young explained that there are certain factors they take into consideration, including:

• Location: The property must be located in a rural area with acreage. Rural 1st does not have acreage restrictions and can work with various acreage sizes.
• Land Use: Understanding the borrower’s long-term plans for the property helps the loan officer structure the loan appropriately.
• Credit Score: Rural 1st requires a minimum credit score of 700. If borrowers do not have a credit score, they also offer manual underwriting.
• Down Payment: A 15% down payment is required. Young suggested borrowers plan to save for the down payment and closing costs over time.
• Other Metrics: Aside from credit score, Rural 1st also considers assets, liabilities and income, just to name a few.

“At Rural 1st, we are a team,” Young said. “We work together to get our farmers and homesteaders the financial products they need to make their farming and homesteading dreams come true.”

Apply for Homestead & Farming Grants

Another avenue for financing a homestead or farm is searching and applying for grants meant to finance a homestead, research efforts or production agriculture.

A few options include:

1. U.S. Department of Agriculture (USDA) Grants and Loans

2. National Institute of Food and Agriculture (USDA)

3. Sustainable Agriculture Research and Education Grants

4. Organic Farming Research Foundation Grant Program

5. National Sustainable Agriculture Coalition Down Payment Loan Program

Advice for New Farmers & Homesteaders

Whatever financing option is decided on, Young stresses the importance of having a conversation, creating a plan with future goals and understanding the options available.

“It never hurts, and doesn’t cost you anything, to have a conversation with a lender,” she continued. “It’s a great opportunity for asking questions to learn how to get started, how to get pre-qualified and what your options are.”