# Bank against acreage



## dlskidmore (Apr 18, 2012)

Got my mortgage acceptance letter today, and it forbids me from getting a property in excess of 10 acres. :sob:

That's quite a blow to the idea of moving this year. Anyone else have this trouble? How did you get around it?


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## PaulNKS (Jan 11, 2009)

I don't know how wide spread it is, but in this area, banks won't normally loan on anything considered as farms. 

Your best bet is to go through someplace that deals mostly with land. We've used Farm Credit which is the former Land Bank. We found them easy to work with and easy to get along with. 

But, as far as banks and credit unions, I wouldn't use one for farm loans.


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## MO_cows (Aug 14, 2010)

The problem might be the mortgage insurance. Are you putting less than 20% down?


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## tytglovett (Aug 27, 2010)

Check and see if Federal Land Bank is in your area. That is who we borrowed money for our land and barn.


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## PaulNKS (Jan 11, 2009)

tytglovett said:


> Check and see if Federal Land Bank is in your area. That is who we borrowed money for our land and barn.


They are now called "Farm Credit".


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## shanzone2001 (Dec 3, 2009)

It could have to do with the type of loan. I know USDA loans have restrictions. If it is the specific loan, could you possibly try a different one?


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## Molly Mckee (Jul 8, 2006)

Most banks around here limit the acreage. They will sometimes make an exception if the house and 10 acres appraise for the sale price of the whole farm.


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## dlskidmore (Apr 18, 2012)

We do only have 10% down, the PMI might be the issue. 

There's a Farm Credit East location not far from where we're looking. They have a couple programs that might work well, but they're not posting rates. Anyone know what interest rates are like through them? I'm assuming higher since they take on projects others are not willing to do. I saw an ad for another farm mortgage place, but they only offered adjustable rate loans, not fixed.


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## dlskidmore (Apr 18, 2012)

We have additional assets to make 20%, but they're not liquid, and it will take time to liquefy them.


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## PaulNKS (Jan 11, 2009)

dlskidmore said:


> We do only have 10% down, the PMI might be the issue.
> 
> There's a Farm Credit East location not far from where we're looking. They have a couple programs that might work well, but they're not posting rates. Anyone know what interest rates are like through them? I'm assuming higher since they take on projects others are not willing to do. I saw an ad for another farm mortgage place, but they only offered adjustable rate loans, not fixed.


Our rates were always lower with Farm Credit. They do not take on loans that others don't want. Banks specialize in residences, some businesses, etc, but typically not ag land. Farm Credit, USDA, and others specialize in farm/ag land but not residences. You're talking about different segments altogether.

Anyone that loans on anything considered a farm will usually require 30% to 35% down.

Our local Farm Credit required 30% plus we had to buy a share of stock for $1,000 and we had to have the equivalent of two payments on deposit with them. Since we chose to have our payments made twice a year, we had to deposit $6K with them.

We used them in 1997 to buy this 160 on a 30 years amortization with a 15 year balloon. We paid 30% down. The calves paid it off in 10 years. The only other one we used them for was 90 acres 18 months ago. Again, we put down 30% and financed it on a 30 years amortization with a 10 year balloon. That was 18 months ago. We'll pay it off this fall.

The other farms were paid cash... By not having to make a lot of interest payments we were able to save the money to put back into land.

Both times we used Farm Credit, we called and talked to them. The first time, our rep took the information over the phone and on a Friday told us to go to the auction Saturday and call him on Monday to tell him how much we had to pay.

This last time we were going to use a bank. No local banks would loan on undeveloped land. So we checked with the Farm Credit office closest to the farm we wanted to buy. They wouldnt' work with us. We called our old rep at the other Farm Credit office and after just 3 or 4 minutes on the phone, he told us to go buy it at the sale and then call and tell him how much we spent. 

When we did that, we just casually asked about borrowing for a house. He told us they don't normally loan on a house, but in our case he would do it.

If you get a good rep at Farm Credit, you won't find anyone that will work harder for you and your needs. 

However, if you only have 10% down, you might be better off saving more, so that you can get better financing. The interest rate will also be determined in part by the amount of money you put down.

Good luck.


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## dlskidmore (Apr 18, 2012)

PaulNKS said:


> Anyone that loans on anything considered a farm will usually require 30% to 35% down.


We could have 30% down next spring, which is a date I can totally live with. There were a lot more properties we were interested listed in May than there are right now, so we were thinking we might not find the right place until next spring anyway.

Will they have any trouble lending to folks with city jobs and no prior farm experience?


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## dlskidmore (Apr 18, 2012)

30% down also standard for owner financed farm sales? There's a website where we can connect to farmers trying to keep their land in farming as they retire, some of them have owner financing available.


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## chewie (Jun 9, 2008)

I think waiting til you have that bit more down would be great. 

on our place, we had to have the house appraised as one unit, the land was another. but, our land had been paid off already. so we could loan against it. you might be able to get 2 loans--house and land. 

we went thru farm credit and they were TONS easier to work with than any bank ever. they actually looked at us like real live humans and everything! not just a number!


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## PaulNKS (Jan 11, 2009)

dlskidmore said:


> 30% down also standard for owner financed farm sales? There's a website where we can connect to farmers trying to keep their land in farming as they retire, some of them have owner financing available.


Sometimes, it pays to plan and have patience, especially if that means the extra time needed to come up with more down payment and to find the place that really suits you. Don't settle for less ground or less house than you think you need. Many homesteaders have rushed to buy and bought less than they wanted to find that the there wasn't enough ground to support what they wanted to do.

Yes, owner financing is a good way to go. You will most likely pay a bit higher interest, but it is an option.

When we have sold on contract, we've asked 15% down and usually charge a couple percentage points higher than the banks or Farm Credit. We have also done the 30 year thing and we've also done the balloon thing. If we were to carry a contract again, we would have a 10 year balloon. That would be enough time to allow the buyers to get their finances in order and arrange better financing through Farm Credit or other places.

If you do a contract with the seller financing, spend the money to have a real estate lawyer look over the contract.


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## dlskidmore (Apr 18, 2012)

PaulNKS said:


> Sometimes, it pays to plan and have patience, especially if that means the extra time needed to come up with more down payment and to find the place that really suits you. Don't settle for less ground or less house than you think you need.
> ...
> If you do a contract with the seller financing, spend the money to have a real estate lawyer look over the contract.


Everyone has a different opinion, I've really got to think and pray about which way is best for our family. Financially, waiting is always best. Family wise? :shrug:

In NY it is customary to have a lawyer involved in even routine closings. They contract the title insurance company, and check on things like taxes and utility bills owed. Really could be done by a low level law clerk or ambitious homeowner, but that's just how it's done here. My bank offer is actually contingent on certain routine paperwork coming from my lawyer.


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## PaulNKS (Jan 11, 2009)

dlskidmore said:


> Everyone has a different opinion, I've really got to think and pray about which way is best for our family. Financially, waiting is always best. Family wise? :shrug:
> 
> In NY it is customary to have a lawyer involved in even routine closings. They contract the title insurance company, and check on things like taxes and utility bills owed. Really could be done by a low level law clerk or ambitious homeowner, but that's just how it's done here. My bank offer is actually contingent on certain routine paperwork coming from my lawyer.


Wow. here, all of that is done with the title company if it's not a contract for deed. The title company handles the closing, title insurance, checks on back taxes, etc.


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## goatlady (May 31, 2002)

Just curious as to how much acerage you are looking at purchasing? You mentioned you have no farming experience, so yes, that will be counted on a farm loan. I worked many years ago for a farm/ranch only lending company in WY and no way would they lend $$ to someone just starting out with no experience unless they presented a feasible workable 5-year plan that included all expences and all income to the penny which would be very hard to do with today's constant increases in expenses and unsteadiness in the markets. If you are thinking of less than 50 acres, you may have a chance with another bank all depending on your income and the land itself. I have 20 with a standard home loan with a local bank with no problems.


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## Pigeon Lady (Apr 4, 2004)

We hit the same problem when we were looking for our farm. We were advised to go to the local bank in the area we were focusing on and tell them we needed an "in-house loan". BB&T was the bank we went to here. We didn't even know how much we qualified for. The loan officer ran all the numbers and gave us a figure so we then knew what price range to look in. It all went very smoothly. Found a nice farm with 34 acres. We did have the 20% to put down though.

Good luck in your search. It can be fun but amazing how much different a place can be in real life, compared to the idilic photos on the internet. We came across a few of those! I hope you find your perfect spot.

Pauline


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## dlskidmore (Apr 18, 2012)

goatlady said:


> Just curious as to how much acreage you are looking at purchasing? You mentioned you have no farming experience, so yes, that will be counted on a farm loan. ... If you are thinking of less than 50 acres, you may have a chance with another bank all depending on your income and the land itself. I have 20 with a standard home loan with a local bank with no problems.


Looking at 20-40 acres. We have enough outside income to cover the payments on that, not depending on farm income to make it work.


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## goatlady (May 31, 2002)

Most interesting - I wonder if land restrictions are a localized practice there. Sure isn't in AR and SD and WY and many other states. Most usually banks could care less how much land accompanies a residential loan. Maybe the banks are wary of folks subdividing and selling off smaller parcels of a larger acerage and not paying the bank for a release of the sold property parcel. Did you ask you bank why the restriction? Their answer may go a long way to showing you how to work around their restriction.


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## dlskidmore (Apr 18, 2012)

goatlady said:


> Most interesting - I wonder if land restrictions are a localized practice there. Sure isn't in AR and SD and WY and many other states...
> Did you ask you bank why the restriction? Their answer may go a long way to showing you how to work around their restriction.


The relative price of land may have something to do with the restriction here vs there. I'm waiting on the bank's reply to my question about that clause.


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## dlskidmore (Apr 18, 2012)

I just got a very reasonable response back from the bank. The PMI insurance company is the one with the restriction, if we apply again when we have 20% down they will finance a larger parcel. They will also do adjustable rate mortgages with only 10% down and no PMI, but I'm not fond of that option. The budget will be tight enough without the opportunity for our payments to go up. Looks like we will wait until next spring when we have 30% down, then compare rates between the credit union and Farm Credit East.


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## dlskidmore (Apr 18, 2012)

We're getting close, and we see a place we like considerably under budget, so I was double-checking with the bank about which other requirements were PMI related, and they got back to me with a line about not being a "commercial farm". Now I'm certainly not planning to replace my current income with farming, and I'm not part of some big multi-owner corporation, but I certainly do want to sell my extra, and there are liability benefits to incorporating that I might want to tap into.


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## idigbeets (Sep 3, 2011)

Have you thought of looking into farm trusts? There are some like that here in PA. Basically a trust owns the land, usually hundreds of farming acreage. You sign onto a 99 year lease, get total control over the land you're leasing, housing etc etc. When you die, it goes back to the trust.


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## farmgal (Nov 12, 2005)

I bought a farm with an fha loan. It was 80 acres. I didnt have 20% down. All they did was take the loan on 5 acres and the house. The rest of the land had its own section on the contract. It stated I get the land for $1.00, contingent on the mortgage payoff. Thats how they did my farm. So essentially I payed $1 for 75 acres. Thats the value of a good lawyer. That lawyer only cost about 250$ and he was the best. Never hire a bad lawyer, never! But always hire a lawyer.

I would guess you can do the same. An FHA mortgage would be the lowest interest rate you will find. It is your best deal.


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## dlskidmore (Apr 18, 2012)

I don't qualify for FHA. Our $14k shack in the city makes us second time home buyers, even though it's A) near worthless, and B) the neighborhood is so bad landlords have trouble keeping tenants on welfare. If I wanted to work my desk job for five more years I could buy my farm with cash.

It's looking more and more like we're going to have to go with Farm Credit East. The bank clarified for me what "commercial farm" means, and they don't want the land to even be zoned for farming, which could get me in all sorts of issues with local laws trying to do what I want to do.

I'm interested in the Farm Trust thing, how do you find those? Do they have smaller ones?


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## dlskidmore (Apr 18, 2012)

Land Trust Alliance looks promising


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## dlskidmore (Apr 18, 2012)

Bah. Found three land trusts near me, they want to buy land from farmers, are not advertising any leases. I'm betting the big boys snatch those up as soon as they become available and put mono-culture on that land.


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## coso (Feb 24, 2004)

They can't sell it on the secondary market with more then ten acres. If you look at some local institutions that keep loans in there portfolio. You might find someone to help you out. The PMI comes into play because they have to use the underwriting of whoever they are selling the loan to.


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## dlskidmore (Apr 18, 2012)

Yeah, but the bit about zoning came after I asked which restrictions would still be in effect if I had 20% down. We're only a few weeks away if they dump some of the restrictions on the agreement.


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## Lazy J (Jan 2, 2008)

coso said:


> They can't sell it on the secondary market with more then ten acres. If you look at some local institutions that keep loans in there portfolio. You might find someone to help you out.


DING DING DING DING. We have a winner!!!!!!!


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## dlskidmore (Apr 18, 2012)

Lazy J said:


> DING DING DING DING. We have a winner!!!!!!!


*shaking head* When I first talked to this little local credit union (two branches) they were all interested and accommodating, but the fine print is gonna kill me! There's a real shortage of little local banks around here, I thought I had a winner but it's a dud.

I'm going to try Farm Credit before I apply formally with the local folks again. I talked with them at Empire Farm Days on Tuesday, they require 20% down, have good rates, and invest in farm property all the time. There's a location in the region we're house hunting in.


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## westend (Jul 11, 2012)

I'm going through NW Farm Credit Services...have the tentative yes, deal goes to underwriting tomorrow. Been easy to work with s far (14acres + construction loan for remodeling). Require a 80% loan to value....


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## dlskidmore (Apr 18, 2012)

How much cash on hand did they want you to have in addition to downpayment? The credit union wanted us to have another 20 grand...


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## westend (Jul 11, 2012)

That was a a little unconventional ....

Three parts, part 1 a down payment which was less than ten percent on the purchase price, then ten percent of the construction part of the loan, then 3 months of reserves. I was able to get an exception and thin out the "total" to about 11% of the overall loan cost up front BUT I am doing a purchase + construction all in one loan, and they get to the 80% loan to value by appraising the property + new building plans. The total remodel has to add up to a 80% loan to value, but that allows me to put a little less into it up front.

I also have a strong monthly income and that factored into it.


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## dlskidmore (Apr 18, 2012)

Yeah, we have the strong monthly income and high credit rating going for us. I'm trying to scrape together all my old stale retirement accounts into one place, i think that will count as 3 months reserve, and I could technically borrow against whole life policy, that's another 2 months reserve...


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## rickfrosty (Jun 19, 2008)

dlskidmore said:


> Got my mortgage acceptance letter today, and it forbids me from getting a property in excess of 10 acres. :sob:
> 
> That's quite a blow to the idea of moving this year. Anyone else have this trouble? How did you get around it?


here more than 7 acres is considered 'investment land' and the downpayment & interest are more.


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