A new government loan program helps guarantee success and provides incentives when farmland is transferred to the next generation of farmers.
Land contract guarantee program removes risk for buyer, seller
Buying land at any age can be a gamble, but it’s incredibly risky for beginning farmers who tend to lack the monetary resources needed. A new loan option from USDA, the Land Contract Guarantee Program, improves the funding availability for beginning and socially disadvantaged farmers in purchasing land.
Secretary Tom Vilsack says he knows young people have limited options in entering farming and ranching careers due to a lack of available credit and few opportunities to purchase land. "We’re trying to make it just a bit easier for those new and beginning farmers to have that opportunity."
Vilsack says there is currently an aging population of farmers and increased interest in farming by young people, which creates a need for new options for both groups. "There are a lot of 20- and 30-year-old folks that are interested into getting in the farming and ranching business. To do that, you have to make programs available that are innovative and flexible enough to be able to be used."
In addition to providing new funding opportunities for beginning farmers, the program also reduces risk for landowners selling ground to young producers.
"There are a number of landowners who are interested in selling land, but when they sell it to a beginning farmer they believe there’s a risk they may get the farm back," Vilsack says. "What we’re doing is essentially using our capacity to guarantee those contracts."
Chris Beyerhelm, Farm Service Agency deputy administrator of farm loans, says with this program, sellers have two guarantee options that protect either against loss of income or value.
The "prompt payment" option means USDA will guarantee three years of loan payments, real estate taxes and insurance expenses. "This assures the income will be there. If the buyer misses a payment, FSA pays the seller," Beyerhelm says.
The "standard guarantee" option provides a 90% guarantee of the outstanding principal on the land contract.
Beyerhelm says this program, as well as all loan programs, are funded through appropriations from Congress. He encourages farmers to take advantage of the program while it is available.
The Fine Print
Here are the basic details of the Land Contract Guarantee Program:
- Seller may request one of two guarantee options, prompt payment or standard guarantee.
- Limited to land contract transfers to beginning or socially disadvantaged/minority farmer.
- Available on new land contracts where the purchase price is $500,000 or less in all 50 states and Puerto Rico.
- Buyer must provide a 5% down payment.
- Buyer must meet same eligibility requirements as other farm loan programs.
- Guarantee is for 10 years but land contract must be amortized, or debt paid off in regular installments, for at least 20 years.
- Interest rate is negotiated between buyer and seller but cannot exceed 3% above FSA’s announced farm ownership rate at the time the guarantee is issued.
- USDA defines beginning farmers as individuals who have at least three years, but less than 10 years, of experience. Socially disadvantaged farmers include women, African Americans, American Indians, Alaskan Natives, Hispanics, Asian Americans and Pacific Islanders. They are eligible for the program and do not have to meet the beginning farmer requirements.
Contact your local FSA office or more information about the program.
- March 2012