“We keep America’s agriculture growing.”
This line may not be something we are all familiar of but, to many, this is an inspiring statement that they hold dear in their hearts.
The United States Department of Agriculture is a federal executive branch ensuring that our agricultural industry remains robust by developing and executing agriculture-related laws.
Moreover, it provides a myriad of loans which aims to assist eligible individuals to prosper in their respective communities.
There are affordable rural home loans which qualified borrowers may use to purchase or refinance homes located in eligible rural areas. There are also infrastructure and community-facility loans which allow underdeveloped rural neighborhoods build their communities. There are also agricultural loans to help new and veteran farmers start or continue their farming operations.
This only goes to show what great opportunities USDA presents to anyone who is qualified. It opens the doors to progress not only for Rural America but for the nation as a whole.
Here we discuss the two popular farm loans offered by the USDA Farm Service Agency, the USDA Direct Farm Ownership Loan and the Guaranteed Farm Loan Program.
USDA Direct Farm Ownership Loan
A direct farm loan is a financing program where the originator of the loan is the USDA itself through the FSA. The funds come from the annual USDA budget which is set by the Congressional appropriations.
The Direct Farm Ownership Loan can be used in a variety of ways:
- For the purchase of a new farm or ranch
- For the expansion an existing acreage
- For the purchase of easements, or the right to cross or use someone else’s land
- To pay for down payment on a farm or ranch and loan closing costs
- To purchase, build or renovate farmhouses, service facilities, and other structures
- To make improvements which are absolutely necessary to continue farm operations
- To further develop the conservation and protection of soil and water
These three main type of Direct Farm Ownership Loans:
Regular Financing Loan
The first type is the Regular Financing Loan. This means that all the funds are provided by the FSA. The loan is directly funded by the FSA to provide farmers and ranchers with the much-needed capital.
There is no participation of any other lending institution or bank in providing the loan funds to the borrower.
Joint Financing Loan
What happens in a joint financing loan is that FSA allows the farmers or ranchers to borrow up to 50 percent of the purchase price or value of the property. The remaining fund balance may be provided by a commercial lender with or without FSA guarantee. This allows farmers and ranchers to access and even greater capital.
- Down Payment Loan
This third one is a special type of Direct Farm Ownership Loan. This is available for new farmers and ranchers, and those applicants who are women and those belonging to a minority.
This loan finances part of the cost of the purchase of small, family-sized ranches or farms.
Unlike the other direct farm ownership loan types where 100 percent financing is possible, the down payment loan requires borrowers to shell out 5 percent of the property’s purchase price.Get Matched with a Lender, Click Here.
How Can You Qualify for a Direct Farm Ownership Loan:
The USDA FSA identifies three main eligibility requirements for a farmer to be qualified for such loan:
The General eligibility requirements must be met by the loan applicants:
- The applicant(s) must exhibit ability to take legal responsibility for a loan
- Must be the owner-operator of a family farm after the closing
- Must be able to show proof of adequate credit history
- Must not carry any debt forgiveness by the FSA in the past. This includes guaranteed loan loss payment
- Must not have any Federal or State conviction related to controlled substances
- Must not be delinquent on Federal debt at the time of closing other than IRS tax debt
- Must meet the citizenship requirements set by the USDA FSA
Furthermore, the applicant must have tried with no luck to obtain any other financing elsewhere.
- Sufficient Farm Management Experience
It is also important for the USDA FSA that the applicants are able to show adequate managerial experience in handling a farm. This may be acquired through on the job training, education and/or general farm experience.
This gives the USDA FSA the assurance that they are lending funds to the right people.
Farmer applicants must have experience in the farm or ranch operations for a minimum of three years out of the ten years before submitting an application. Moreover, there should be substantial proof or documentation that the participation was not solely as a laborer.
It should be noted that this requirement is a law and is, therefore, not waivable.
- The farm or ranch should be an eligible farm enterprise.
This loan cannot be used to fund non-farm enterprises. Good examples of non-farm enterprises are raising and breeding of horses or dogs for show, racing, boarding and the like, tropical fish cultivation and raising of exotic birds.Connect with a Lender, Click Here.
How Much Money Can You Get from a Direct Farm Ownership Loan?
For Both the Regular type and the Joint Financing Type, the maximum loan amount is $300,000. The borrower may get 100 percent financing from the USDA FSA as long as it does not go beyond the cap.
On the other hand, the Down Payment Financing type does not apply the same rules.
The maximum loan amount must not be more than 45 percent of whichever is the lesser amount of either the purchase price, the property’s appraised value or $667,000 (subject to the cap of $300,000).
Moreover, the borrower must put at least 5 percent towards the down. The balance of the down payment fund may be loaned from another lender as long as the combined financing from the FSA and the other lenders do not exceed 95 percent.
Now that you know the basics of the Direct Farm Ownership Loan, it is also wise to know about one other farm financing program from the USDA FSA. Learn more about the USDA Guaranteed Farm Loans. Click here to read more about guaranteed farm loans.
For a more comprehensive discussion of the Direct Farm Ownership Loan, you may speak with a local farm loan officer or manager. You may also visit the USDA FSA website to look up for additional information.
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