Farm Ownership Loans offer up to 100 percent financing and are a valuable resource to help farmers and ranchers purchase or enlarge family farms, improve and expand current operations, increase agricultural productivity, and assist with land tenure to save farmland for future generations. With a maximum loan amount of $600,000 ($300,150 for Beginning Farmer Down Payment), all FSA Direct Farm Ownership Loans are financed and serviced by the Agency through local Farm Loan Officers and Farm Loan Managers. The funding comes from Congressional appropriations as part of the USDA budget.
FSA’s Direct Farm Ownership loans are used to:
Buy a farm or ranch
Enlarge an existing farm or ranch
make a down payment on a farm
purchase of easements
Construct, purchase or improve farm dwellings, service buildings or other facilities and improvements essential to the farm operation
Promote soil and water conservation and protection
Pay loan closing costs
There are 3 types of Direct Farm Ownership Loans: "regular," joint financing, and downpayment depending upon individual needs. FSA also offers a Direct Farm Ownership Microloan for smaller financial needs.
Direct Farm Ownership Joint Financing Loan:
Also known as a participation loan, joint financing allows FSA to provide more farmers and ranchers with access to capital. FSA lends up to 50 percent of the cost or value of the property being purchased. A commercial lender, a State program, or the seller of the farm or ranch being purchased provides the balance of loan funds, with or without an FSA guarantee.
Direct Farm Ownership Down Payment Loan:
Available only to eligible beginning farmers and ranchers and/or minority and women applicants, a Down Payment loan is a special type of Direct Farm Ownership loan program that partially finances the purchase of a family size farm or ranch. Beginning farmers do not have to identify themselves as a minority or woman, and minority and women loan applicants do not have to be beginning farmers.
The Down Payment Farm Ownership loan is the only loan program that does not provide 100 percent financing. Down Payment loans require loan applicants to provide 5 percent of the purchase price of the farm.
As established by the Beginning Farmer definition, loan applicants interested in the Down Payment loan may not own more than 30 percent of the average size farm at the time of the application. The applicant may exceed the 30 percent after the loan is closed. The most current Census of Agriculture data is used in this calculation.
There are 3 different types of qualifications for a direct farm ownership loan which need to be met:
Eligible farm enterprise
General eligibility requirements
Farm management experience
First, the operation must be an eligible farm enterprise. Farm Ownership loan funds cannot be used to finance nonfarm enterprises, such as exotic birds, tropical fish, dogs or horses used for non-farm purposes (racing, pleasure, show and boarding).
All loan applicants must be able to meet the following general eligibility requirements:
Must not have Federal or State conviction(s) for planting, cultivating, growing, producing, harvesting, storing, trafficking, or possession of controlled substances
Have the legal ability to accept responsibility for the loan obligation
Have an acceptable credit history
Be a United States citizen, non-citizen national or legal resident alien of the United States, including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and certain former Pacific Trust Territory
Have no previous debt forgiveness by the Agency, including a guarantee loan loss payment
Be unable to obtain sufficient credit elsewhere, with or without an FSA loan guarantee
Not be delinquent on any Federal debt, other than IRS tax debt, at the time of loan closing
Not be ineligible due to disqualification resulting from Federal Crop Insurance violation
Be able to show sufficient farm managerial experience through education, on-the-job training and/or general farm experience, to assure reasonable prospect of loan repayment ability
Must be the owner-operator of a family farm after loan closing
Managerial Experience Requirements:
The Direct Farm Ownership loan is different from all the other FSA loan offerings because Congress wrote into the law an additional 3 year farm management experience requirement. These 3 years of experience must be within 10 years of the date of loan application.
Loan applicants may substitute 1 year of those 3 years if they have 1 of the following:
Post-secondary education in an agriculturally-related field; and/or
Significant business management experience; and/or
Leadership or management experience while servicing in any branch of the military.
To gain credit for 2 out of the 3 years, loan applicants must show 2 of the following:
Not less than 16 hours of post-secondary education in an agriculturally-related field; and/or
Significant business management experience with at least 1 year of management in a non-agriculture related field where the applicant's day-to-day responsibilities included direct management experience, such as personnel decisions, payroll, and inventory ordering. In other words, not an individual who is a manger in title only; and/or
Having been honorably discharged from the armed forces of the U.S.; and/or
At least 1-year experience as hired farm labor with substantial management responsibilities; and/or
Successfully completed a farm management curriculum offered by a cooperative extension service, a community college, an adult vocational agriculture program, a non-profit organization, or a land grant college or university; and/or
Successfully completed a farm mentorship, apprenticeship, or internship program with an emphasis on management requirements and day-to-day farm management decisions; and/or
Successfully repaid an FSA Youth loan; and/or
Have an established relationship with an individual who has experience in farming or ranching, or is a retired farmer or rancher, and is participating as a counselor in the U.S. Small Business Administration's Service Corps of Retired Executives (SCORE) program or with a local farm or ranch operator or organization, approved by the Secretary, that is committed to mentoring the farmer or rancher.
There are 2 ways to by-pass the 3 year farm management experience requirement entirely:
Use the Guaranteed Farm Ownership loan program, which works through a commercial lender; or
Have at least 1-year experience as hired farm labor with substantial management responsibilities and be working with a SCORE mentor.
Maximum Loan Limitations:
The maximum loan amount for a "regular" Direct Farm Ownership loan is $600,000. The maximum loan amount for a Joint Financing or Participation Farm Ownership loan is $600,000.
Direct Farm Ownership Down Payment maximum loan amount works differently. The maximum loan amount under this loan program will not exceed 45 percent of whichever is the lesser amount of:
the purchase price;
the appraised value of the farm being purchased; or
The balance of the purchase price not covered by the down payment loan and applicant down payment may be financed by a commercial, cooperative, or private lender, including the seller. The financing provided by FSA and all other creditors cannot exceed 95 percent of the purchase price. An FSA guarantee may be used if financing is provided by eligible lenders.
The interest rate charged is always the lower rate in effect at the time of loan approval or loan closing for the type of loan wanted. Interest rates are calculated and posted the 1st of each month.
The maximum repayment period for the Direct Farm Ownership loan and the Joint Financing loan is 40 years.
The repayment term for FSA's portion of a Down Payment loan is 20 years. The non-FSA financing portion is required to be at least a 30 year repayment period with no balloon payment allowed within the first 20 years of the loan.
It recommended that you call and make an appointment with your nearest Farm Loan Officer or Farm Loan Manager. Agency officials are required to:
Help loan applicants complete FSA forms and gather information necessary for a complete application;
Explain the application procedure, process, and the requirements for a complete application;
Assist loan applicants in completing FSA forms and identifying sources of information needed for a complete application, if assistance is requested;
Inform loan applicants of other technical assistance providers who may be of assistance at minimal or no charge. Some examples include, and are not limited to, the Cooperative Extension Service, non-profit organizations and institutions, the Intertribal Agriculture Council, and other similar organizations; and
Advise applicants of alternatives that will help overcome any possible barriers to being determined eligible for an FSA loan.
Suggestions for First Meeting with FSA
Have a general idea of what it is you want to do and be able to identify your goals. What type of operation do you have or want to have? What do you need to operate that farm or ranch? How will you market your product(s)? How much do you need? What are your projections?
Good recordkeeping is very important. If you do not have your records organized, it is a good idea to try and put all your income and expenses into an understandable format. It does not have to be fancy. Also, what is happening inside the household is just as important as your business needs. Expenses such as food, clothing, mortgage or rent, insurance, taxes, medical costs, credit card payments, education expenses, and other consumer debt are part of the farm plan calculations. Know your costs. Bring your records with you.
Remember to bring any financial records, which can include tax returns, for the most recent production cycle to assist in projecting the cash flow for your loan proposal. If you need to rely on off-farm income to repay the loan, bring in your last few pay stubs.
Bring copies of any written leases to the office with you if you are leasing land or equipment.
It is a prudent idea to check your credit report before applying for a loan. This allows you to spot any errors or research events that may have negatively impacted your credit. The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies—Equifax, Experian, and TransUnion—to provide you with a free copy of your credit report, at your request, once every 12 months. The FCRA promotes the accuracy and privacy of information in the files of the nation's credit reporting companies. The Federal Trade Commission (FTC), the nation's consumer protection agency, enforces the FCRA with respect to credit reporting companies.
Many answers can be found in the booklet, "Your Guide to FSA Farm Loans.
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Updated October 7, 2021
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