How Farm Ownership Loans Work

What a farm ownership loan is and who offers them

A farm ownership loan is a long-term loan designed to help someone buy agricultural land, buildings, equipment, or livestock needed to start or expand a farm operation. The U.S. Department of Agriculture (USDA) offers the most common farm ownership loans through its Farm Service Agency (FSA), though some banks and credit unions also make these loans.

The USDA farm ownership loan is meant for people who cannot get financing from a conventional lender — either because they lack collateral, have limited credit history, or are buying land in a rural area where banks are reluctant to lend. The loan can cover up to 100 percent of the cost of the farm, land, or equipment, depending on the specific program and your situation.

These loans are different from operating loans, which cover year-to-year farming costs like seed and fertilizer. Farm ownership loans are for the assets themselves — the land and permanent improvements that will support the farm for decades.

Key Takeaways

• The USDA Farm Service Agency offers farm ownership loans to people who cannot get conventional financing, with terms up to 40 years.
• You must be a U.S. citizen or permanent resident, have farm experience or training, and show that you cannot borrow from a bank to use this loan.
• The loan can cover land purchase, buildings, wells, fences, equipment, and livestock, but the FSA will appraise the property to set the loan amount.
• Interest rates and repayment terms vary by program and change throughout the year, so you will need to contact your local FSA office for current details.
• The process process includes a credit check, farm plan review, and property appraisal, and typically takes several weeks to several months.

Who can get a farm ownership loan

To get a USDA farm ownership loan, you must be a U.S. citizen, a permanent resident, or a federally recognized Native American tribe. You must also have a direct or indirect ownership stake in the farm — you cannot borrow money to buy a farm you will not own.

You need to show that you have farm experience or have completed farm training. This does not mean you need decades of farming — the FSA accepts classroom training, apprenticeships, or a few years of hands-on work. If you are buying a farm with a spouse or partner, at least one of you needs to meet this requirement.

The FSA will also require that you cannot get a loan from a bank or other conventional lender on reasonable terms. This is called the "credit elsewhere" test. You do not have to be turned down by a bank first — the FSA can determine that you would not may have access to based on your credit report and financial situation. Having poor credit or no credit history actually strengthens your case for an FSA loan.

What the loan can and cannot cover

Farm ownership loans can pay for land, farm buildings, irrigation systems, wells, fences, drainage systems, and permanent equipment like grain bins or milking parlors. They can also cover the cost of clearing land, making soil and water conservation improvements, and purchasing livestock breeding stock.

The loan cannot cover operating expenses like seed, fertilizer, feed, or fuel — those are covered by operating loans. It also cannot pay for equipment that is not permanently attached to the farm, such as tractors or combines (though some programs have separate equipment loans). The FSA will send an appraiser to the property to determine what can be financed and at what value.

If you are buying an existing farm, the loan covers the purchase price up to the appraised value of the land and buildings. If you are making improvements to land you already own, the loan covers the cost of the improvements plus any land purchase.

Loan amounts, interest rates, and repayment terms

The maximum loan amount depends on the appraised value of the farm and your ability to repay. The FSA will lend up to 100 percent of the appraised value in some cases, though this varies by program and your financial situation. There is no single maximum dollar amount — it depends on what the farm is worth.

Interest rates on USDA farm ownership loans are set by the FSA and change periodically. They are typically lower than conventional bank rates, but the exact rate depends on the program you use and the current market. You will need to contact your local FSA office to learn the current rate.

Repayment terms are usually 40 years for land purchase and 20 years for equipment or buildings, though this can vary. You make monthly or annual payments depending on the loan agreement. If you have a down payment, you can reduce the loan amount and lower your monthly payment.

How to start the process process

The first step is to contact your local FSA office. You can find it by searching "USDA Farm Service Agency" plus your county name, or by visiting farmers.gov. The FSA staff will explain which loan program fits your situation and what documents you need to bring.

You will need to provide proof of citizenship or permanent residency, a personal financial statement, tax returns from the past two years, and a description of your farm experience or training. If you are buying an existing farm, bring the purchase agreement or listing. If you are improving land you own, bring a description of the improvements and cost estimates.

The FSA will order a property appraisal, which you may have to pay for upfront (the cost is usually a few hundred dollars). This appraisal determines how much the FSA will lend. The FSA will also run a credit check and review your ability to repay based on projected farm income.

What happens after you explore

After you submit your process, the FSA reviews your credit, finances, and farm plan. If you are buying land, they will order the appraisal. This review typically takes four to eight weeks, though it can be longer if the FSA needs more information from you or if the appraisal takes time.

If the FSA approves your loan, you will receive a loan note and security agreement to sign. This document explains the interest rate, repayment schedule, and what happens if you default. You will also need to get title insurance and a survey of the property (the FSA usually requires these).

Once you sign the loan documents, the FSA will disburse the money. If you are buying land, the money typically goes to the seller's attorney or title company at closing. If you are making improvements, the FSA may disburse the money in stages as the work is completed.

Other farm loan programs to know about

The USDA also offers farm operating loans, which cover annual farming costs and are repaid within one to seven years. These are separate from ownership loans and have different terms and requirements.

Some states and nonprofits also offer farm loans or down payment information for beginning farmers. These programs vary widely by location. Your local FSA office can tell you what other programs may be available in your area.

If you are a veteran, the USDA has a separate farm ownership loan program with slightly different terms. Contact your local FSA office to learn whether you may have access to.

Frequently Asked Questions

Can I use a farm ownership loan to buy equipment like a tractor?

Farm ownership loans are for land and permanent structures. Tractors and other movable equipment are usually covered by separate equipment loans or operating loans. Ask your FSA office whether an equipment loan would work for your situation.

What if I do not have farm experience?

You can take a farm management course or apprenticeship to meet the experience requirement. The FSA accepts classroom training from universities, extension services, and nonprofit organizations. Ask your local FSA office which programs they recognize.

How long does the whole process take from process to getting the money?

The timeline varies, but most loans take two to four months from process to closing. If the property appraisal is delayed or the FSA needs more information from you, it can take longer. Ask your FSA loan officer for an estimate based on your specific situation.

What happens if I cannot make a payment?

Contact your FSA office when ready. The FSA may be able to restructure your loan or work out a payment plan. If you default, the FSA can foreclose on the farm, so it is important to communicate early if you are having trouble.

Can I pay off the loan early without a penalty?

Most USDA farm ownership loans allow early repayment without penalty. Check your loan documents or ask your FSA loan officer to confirm the terms of your specific loan.