New farmers don’t have the luxury of having accessible farmland. They need capital, namely money. Of course, this is not easy, leaving many new farmers without land. There is financing available from the USDA in the form of Direct or Guaranteed loans, but you still need a down payment.
Take a look at the Farm Service Agent’s Down Payment Loan Program to see if it is an option for you.
What is the FSA Down Payment Loan Program?
Farmers interested in the Down Payment Loan Program must have a cash down payment of 5%. This is money you must put down yourself. The remaining down payment comes from the loan program. Additionally, farmers must be able to secure financing from a another source for at least 50% of the purchase price.
The FSA provides a guarantee on the loan. This is similar to the guarantee the USDA provides on residential loans. If the farmer stops paying the loan, the FSA guarantees 95% of the outstanding balance. They do not charge a fee for this guarantee, either.
The FSA will provide up to 45% of the price of the farm. The remaining 55% comes from the farmer’s cash down payment (5%) and the 50% loan from a lender. The maximum value of the farm cannot exceed $667,000. In other words, FSA will not provide a Down Payment Loan of more than $300,150.
Qualifying for the FSA Down Payment Loan
As is the case with any FSA guaranteed loan, you must be a beginning or socially disadvantaged farmer. A beginning farmer can’t have more than 10 years’ experience operating a farm. A socially disadvantaged farmer is a farmer in a minority group, such as African American.
However, each farmer needs at least 3 years of experience managing a farm. This gives the FSA reassurance that you will remain successful. Without the experience, it’s easy to get overwhelmed and stop making your payments. It is similar to the 2 years of job experience you need when you apply for a residential loan.
What Interest Rates Does the FSA Charge?
Interest rates are rather low on the Down Payment program. The FSA charges 4% less than the FSA Direct Farm Loan rates. The minimum rate, however, is 1.5%. You can use the FSA website to find the current interest rates. If the rates for the Direct program are ever below 6.5%, your interest rate will be 1.5%. Any rates higher than that, though, use the following calculation:
Current Direct Loan Interest Rate – 4.0% = FSA Loan Down Payment Program Interest Rate
Applying for the FSA Down Payment Program
If you wish to apply for the FSA Down Payment Program, you must contact your local Farm Service Agency. You can find your local office here. If you are unsure which local office you should use, contact your state agency first. They can then direct you to the appropriate office.
Financing the Remaining Farm Cost
Once you put your 5% down and finance the 45% down payment, you must secure financing for 50% of the cost. If you opt for FSA financing, you have two options:
- Guaranteed FSA Loan
- Direct FSA Loan
The Guaranteed FSA loan provides you with funds up to $1,399,000. You can use the funds for ownership or operation funds.
You must prove you can’t secure any other type of funding with this loan. It is a USDA guaranteed loan. However, the lender is in charge of the insurance premiums, not the borrower. This differs from residential USDA loans where the borrower pays the premiums. You apply for this loan with a bank and the bank then communicates with the USDA for final approval.
The Direct Loan are funds that come directly from the FSA. You do not use a bank for this loan. You can receive up to 50% of the cost of the farm with this loan. You must also have basic qualifications including decent credit, farm-operating experience, be the owner-operator of the farm, and not have any previous defaults on federal loans.
The FSA Down Payment Program is another piece of the puzzle helping farmers own farmland. The FSA is instrumental in helping you get your farm career started!
