How an FSA Loan Program Can Help You Purchase Your First Farm
Many people would like to own a farm but feel overwhelmed by the current environment and are unsure of how to get started. The Farm Service Agency (FSA) Beginning Farmer Loan Programs can be an excellent option for this exact situation. These programs are designed to help beginning farmers purchase farmland and establish successful agricultural operations. They provide low-interest financing options and support to farmers who do not qualify for traditional loans. These programs have no age requirements and no net worth limits, making them different from other programs. This gives opportunities for people to return to the farm that they might not have had the chance to otherwise.
Who Qualifies as a Beginning Farmer?
To be eligible for the FSA Beginning Farmer Loan Program, you must meet the following criteria:
- Farming Experience: You have not operated a farm for more than 10 years.
- Ownership Limitation: You cannot own a farm larger than 30% of the average sized farm in your county, at the time of application.
- Ability to Repay: You must demonstrate the ability to repay the loan based on your projected cash flow.
Types of Loans Available for Beginning Farmers
Down Payment Program
The Down Payment Program helps beginning farmers secure financing for land purchases with a low interest rate and manageable repayment terms.
- Loan Location: Up to 45% with FSA and 50% with commercial lender
- Loan Amount: Loan amount limited to 45% with a maximum of $300,150
- Downpayment: Cash down payment of at least 5% of the purchase price
- Interest Rate: Currently 1.875% for March 2025
- Repayment Period: 20-year loan term on FSA loan
- Remaining Balance: 50%- can be financed through a commercial lender or private party for a minimum of a 30-year term
Direct Participation Farm Ownership Loan or Direct Farm Ownership Joint Financing Loan
This loan allows beginning farmers to purchase farmland, construct buildings, or improve existing infrastructure.
- Loan Location: Up to 50% FSA and 50% commercial lender
- Loan Amount: Up to $600,000
- Downpayment: There is no down payment required
- Interest Rate: Currently 3.875% for March 2025
- Repayment Period: 15 to 40 years
Guaranteed Farm Ownership Loan
In this option, a commercial lender provides the loan, while FSA guarantees up to 95% of the loan amount. This reduces the risk for the lender and offers better terms to the borrower.
- Loan Location: The commercial lender holds the entirety of the loan.
- Loan Amount: Up to $2,251,000. The amount is adjusted annually based on inflation.
- Interest Rate: Negotiated with the lender, typically more favorable due to government guarantee.
- Repayment Period: Varies according to the type of the loan, collateral securing the loan, and repayment ability, but cannot exceed 40 years.
How to Apply for an FSA Beginning Farmer Loan
The application process can seem intimidating. However, the process is definitely worth the trouble to go through a few extra steps. Overall, the application is not difficult at all and most of the documentation is similar to what is needed for any loan. It is essential to create a relationship with both your local FSA loan officer and your commercial loan officer. These are people who you will lean on during your land purchase and while operating your farm.
To apply, you will need to complete a loan application for FSA. Be sure to use the checklist included in the application to make sure that everything is included. You will also need to provide your tax returns, balance sheet, and your projected cash flow. The cash flow is a crucial part of whether your application will get approved because the FSA needs to be assured that you can repay your loan. As stated earlier, your commercial loan officer and local FSA loan officer will be integral in the application. You can find more information at www.fsa.usda.gov/farmloans.
Why This Program is a Game Changer for Beginning Farmers
These programs allow farm ownership to be accessible to the beginning farmer with lower interest rates and more flexible repayment options that most lenders cannot provide on their own. Also, the beginning farmer can apply for more than one of these loans if they continue to meet the requirements set by FSA. These loans provide an opportunity to help build a foundation for the next generation of farmers.
In a future blog post, I will write about other opportunities for beginning farmers. In the meantime, feel free to reach out to us at Mid Iowa Real Estate, Auctions, & Appraisals (my number is 641-903-9607) if you have any questions on beginning farmer loans or anything related to farm real estate as we strive to be a resource for you.
Andrew Benning