The process of buying land can seem confusing to those who have never done it before. No two properties are the same and many people have very different goals when it comes to what they want to do with the land they want to purchase. Some are investing for the long run, and others are ready to get started on their next project as soon as the paperwork is signed. No matter what your goals are, this article has everything you need to know about the process of buying land.

New: Click here to watch the video on how to buy land instead of reading!

What to know before buying land

Prior to purchasing land, it is important for you to know what you intend to do with it. Without a goal or a general direction of purpose for the property (and how you’ll use the loan funds), your lender won’t be able to determine how to best structure your loan. Unlike a property that already has improvements or structures (like fencing, access road, etc.) on it, the property type and purpose is undefined for bare land.

How to find land to buy

There are many routes you can take when searching for land. Some involve a little more effort but with a mixed approach, once you start looking for the opportunity to purchase land, you’re more likely to find what you’re looking for. Here’s how we suggest finding land to purchase:

ONLINE

One of the easiest ways to find land to purchase is online; all you have to do is search for “Land for sale in ___”. If you want to use more specific resources to find bare land, the Lands of America Network (Land.com) has many websites dedicated to land and bare land listings.

THROUGH A REAL ESTATE AGENT

Another good way to find land for sale in a specific area is to enlist the help of a real estate agent who knows the marketplace in which you would like to purchase. Real estate agents see new listings as they become live and may even know about potential listings before they are shared publicly.

GET ACTIVE IN THE COMMUNITY

If you haven’t already started building your network of professionals in the rural community, this can also be a viable way to help you find land for sale as well. Reach out to local commodity groups, builders, real estate agents and farmers to get involved in your local rural community and start talking to folks about what you’re looking for.

What makes a land loan different than other loans?

Land loans are inherently more risky for a bank because of the way land values fluctuate in the bare land market – there really isn’t much stability or consistency across the board.

As an example, it’s easy to get an appraisal on a home on an acre because there are typically many other properties that an appraiser can use to compare to get an accurate valuation. On the other hand, an acre sized property without a home has less comparable properties to accurately determine the true value of the property.  

The key thing to remember here is: every piece of property is different because of the land use it may currently have or has the potential to have in the future. Some tracts are uncleared and serve as timberland. Some tracts are zoned agricultural and will be used in production ag.

Another piece that feeds into determining land value is what kinds of structures or improvements have already been worked into this land. Buildings like barns and homes, or improvements like access roads, are going to alter the way the property is valued because there has already been some kind of investment made.

The unfortunate truth is that many regular banks are not willing to provide financing for land because of this risk – if a land loan is defaulted on, the only way to repay the outstanding debt is for the bank to take ownership of the land, which is not ideal for the bank or their balance sheet. This is a highly specialized area of financing which means you need to make sure you’re choosing a lender that understands your goals and wants to work with you.

What steps do we need to take to purchase the land?

This process is going to look different for each buyer – but don’t be discouraged. The most important things for you to figure out as a buyer are:

• Purpose for the purchase and the intent of use for the property,
• How you’re going to finance it (how much money you have for a down payment, what you can afford, etc.), and
• Who you’re using as a real estate agent (or maybe not).

Where to get a loan for land?

Many lenders offer financing for land and will structure loans specific to an intended use for the property – which can be good or bad. As an example, let’s say you want to buy land to build a home. With other lenders, you may get a loan that has a 1-3 year balloon that requires you to begin construction on a home at that time or forces you to refinance with another lender. Not great for you if you change your mind or your plans change.

Farm Credit understands that plans aren’t always set in stone, so we offer loans that are flexible to meet your needs, no matter whether your goals are long term or short term. We offer loans for bare land, loans for buying land to build a home, operating loans for agricultural purpose properties, and more!

Land Loan Application Requirements – How to tell if I am eligible for a land loan now?

If you haven’t found the particular property you may want to purchase yet, then a pre-qualification may be the best first step to make sure you are a qualified candidate to apply for the loan.

If you’ve already found the property and are interested in making an offer, you would continue with a formal application as a pre-approval. This would involve a formal qualification, and having the lender pull a credit score for each applicant. Farm Credit typically asks for several items of documentation, including: personal identification, income verification, and a list of assets/liabilities. You’ll want to make sure to give us a call before gathering all of these items, to make sure you don’t have to provide anything else. Because each piece of property is different, you may be required to submit other key pieces of information.

An important thing to note is: “One of the many misconceptions about Farm Credit is that we only finance farmers and that’s simply not true. Our membership is very diverse and many have full time jobs that help them afford their rural property that aren’t in agricultural production,” explains Kelsey Feeg, a loan officer in our Shoemakersville, PA office.

Pre-approval for land loan VS pre-qualification for a land loan – Which do I need and when?

The answer to this question really depends on where you’re at in your process. If you’ve already found the property you want and have an agreement of sale, then we would work this through our process as a formal approval.

A pre-approval may be the best choice for you if you have a few properties identified as potential purchases and would like a formal answer from our credit team. If you’re in a hurry to move on a property, or if you’re early in the process, then a pre-qualification may be appropriate. Speaking with a loan officer is the best first step in this process to determine how the potential application should be handled – we are happy to do both!

Loan Process – How to get a loan for land?

When deciding on which lender to get a land loan from, make sure to prioritize flexibility – after all, it is your land and your decision what to do with it! Often times, buyers say they know they want to construct a home on the property, but then their plans will change after the loan is written. Many lenders don’t factor this flexibility into your loan package which will likely cost you time and money if you have to restructure your loan or want to pay it off ahead of time.

With Farm Credit, members enjoy the ability to pay on their loan as scheduled, without disruption, and payoff the loan early if they choose, without pre-payment penalty fees.

The flexibility factor is especially true for a lot loan for which you might be planning a home construction in the future and even for larger tracts of farm land. You’re in charge of what you want to do with your land when you finance with Farm Credit. We also have long term fixed rates which give you the security to counter balance the flexibility previously noted.

If you’re curious about how to get a Farm Credit loan, check out our Loan Process Simulator and learn the step by step process.

Is special financing available for first time land buyers?

Because land is a specialized area when it comes to financing, there are not FHA type programs available for land. Because most of these types of financing programs would be held and serviced in-house by a bank, a minimum of a 20% down payment is typically required. This is especially true for a more residential type purpose for a land loan.

For a larger tract being purchased for farming or agricultural use, loan programs through the FSA may be appropriate. However, you’ll want to make sure that you qualify for those programs through conversations with your local FSA office(s).

If you’re ready to begin your journey buying land to build a home or buying land to farm, fill out this form to speak with a loan officer today to discuss your options.

The Farm Credit Foundation for Agricultural Advancement will be awarding at least $100,000 in scholarships to students who are planning to attend or are currently enrolled as full-time students at a college, university, or technical school, pursuing a career in agriculture. The application opened online on September 25, and the deadline for all applications and supporting materials is January 8, 2021.

“This scholarship program is truly life-changing,” says Tony Ill, Chairman of the Farm Credit Foundation for Agricultural Advancement. “The future of the agricultural industry is in our youth, and our scholarship program provides students looking to make an impact on ag with the opportunity to do so.”

The Farm Credit Foundation for Agricultural Advancement’s scholarship program will award at least ten scholarships in 2021, each valued at $10,000. This program is open to high school seniors and students currently enrolled in a two or four year educational program. All applicants must be planning to pursue a career in agriculture, and must reside within Horizon Farm Credit’s five-state territory.

“We encourage any eligible student to apply and share their agricultural story and aspirations with us,” adds Ill. “It’s not limited to those who want to be a farmer. There are many other sides of ag, like being a food nutritionist, soil scientist, veterinarian, or ag educator.”

Applications are being accepted online now through January 8, 2021. For more information, please visit FCFoundationforAg.org or email info@FCFoundationforAg.org. Be sure to follow us on social media with the hashtag #OtherSideOfAg.

We know you want to be a successful equestrian. We also know how much time it can take to find the perfect piece of property to help your dream become a reality. As you begin your search, consider these five questions to ensure you make the right decision for you.

Why do you want to purchase a horse property?

Asking yourself why is a great place to start. Why do you want to own a horse farm? Are you looking to generate income from your equine business? This could mean running a horse breeding and training facility. Or, are you looking to offset the cost of horse ownership by creating a secondary business?

If so, we recommend defining your future income and expenses before you jump into farm ownership. Start by identifying what services you are planning to offer– this could include client horse boarding to fill extra stalls or providing lessons in your indoor arena to provide additional revenue. If you need help fleshing out these details, check out how to create a business plan for your equine operation.

Your future horse property investment could also be encouraged by your personal interest - simply enjoying the beauty of horses and the equestrian lifestyle.

What do you want to do with your business?

We know not all horse farms are alike, and each stable has its own unique identity. It’s common to see a barn specialize in dressage training or reining, just to name a few disciplines. We recommend identifying what type of operation you plan to run.

Once you determine your main focus, think about what (if any) additional services and amenities you are willing to offer. For example, would you offer trailering services to nearby shows, or are you located close to trails for recreational riding? Identifying what you want to do with your business will help in crafting your overall positive client experience.  

Where are you going to be located?

Location means everything in business. Why would a client want to bring their horse to your property? Is the property aesthetically pleasing and easy to access? Have you considered where your clients will be traveling from to do business with you? We know for many horse boarders, travel time can be a defining factor in an already hectic schedule, so being located in an easily accessible location will help you be more appealing for future clients.

Another item to research is the availability of resources in your area. Does the property offer enough space for manure management, pasture turnout, or even expansion? Is there a reliable supply of local feed, hay, and bedding resources? Do you have access to dependable farrier and veterinarian services in the area? Your resource team plays a huge role in building a successful equine operation and it should not be overlooked.

What is your skill level of horse care?

Are you personally planning to provide daily care for your horses or are you paying someone with equine experience to provide that service for your horse property? If you decide to employ staff, have you taken into account the added labor expense on your balance sheet? Do you have enough facility space to grow your onsite horse production services?

If you are planning to provide daily care, having a sound understanding of equine nutrition and overall horse health will be needed. Sourcing high quality hay, grain, and supplements is a daily need of horses. Also, planning to provide additional services such as deworming, hoof care, vaccinations, and dental care will all influence the well-being of your horses and your client’s horses.

What do you need in a financial lender?

We know you want to work with the best equine lending specialist, and we understand what it takes to handle equine loans. All of the above questions may seem overwhelming at first, but that’s why we’re here – to walk you through each question and step. Business or pleasure, large or small, let us help you.

At Farm Credit, we have close ties within the equine industry, offer flexible rates and terms, and, as a cooperative, our members are able to take advantage of our patronage program that allows us to return part of our profits back to our borrowers.

The borrower-lender relationship is a two-lane road. Both parties have mutual goals. Both want to ensure the long-term viability of their businesses. And both have high expectations for one another.

So how do we make sure everyone is on the same page?

Clear communication and being prepared at each step of the process.

How to choose a loan officer and lender

When preparing to work with a lender, know that there’s more to the deal than just interest rate. From the first time you make contact with them, you should also actively be evaluating the lender and loan officer based on the following characteristics:

1. SKILLS & QUALITIES

• Do they have a stake in your industry?
• Are they forward thinking or looking back?
• Are they involved in agricultural events?
• Do they understand your business and the risks?
• Are they asking the right questions to get to know your business?
• What are the characteristics of their current borrowers?

2. CAPACITY

• Are they able to meet current and future borrowing needs?
• What are the lender’s limitations?
• Will they grow with you and your business?
• You work when the sun shines – will they come out to the farm to meet you?

3. PRODUCTS & SERVICES

• Do they take a cookie-cutter or a customized approach?
• Do they have competitive rates?
• Do they offer flexible terms?
• What are the offered conditions for the loan?
• What services do they have beyond loan products?
• Are there special lending options for young, beginning, and small farmers?

4. PEOPLE & LENDING PHILOSOPHY

• Do they take a team approach to loan services?
• Is this lender transactional vs. having a long-term relationship?
• Do they offer stability in a changing environment?
• Will you have access to the decision-maker?
• Do they have industry knowledge?
• Do they give you the ability to evaluate options and alternatives?
• Do they value confidentiality and ethics?
• Timeliness and convenience for your schedule

5. LONG-TERM PRESENCE IN AGRICULTURE

• Will they walk the walk, and give support during prosperous and challenging times?
• Are they committed to the industry and its people?
• What is the financial health of the institution?
• What is their investment in customers?

It may seem like a lot to think about, but doing due diligence before you sign any paperwork will pay off in the end. Loans are a long-term commitment, so you should be sure that you want to work with this lender or loan officer well into the future.
 

Things a Loan Officer will look for when applying for a loan

As you might expect, the loan officer will also be assessing many different characteristics about you; after all, it is their job to make good lending decisions for the good of the company. Here are some things a loan officer will look for when considering your application for a loan:

1. FINANCIAL INFORMATION & DOCUMENTATION

• Balance sheet – Assets, liabilities and monthly payments
• Income statement
• Cash flow projections
• 3 Years of Tax Returns – individual and corporate (when applicable)

2. WRITTEN BUSINESS PLAN (IF APPLICABLE)

Don’t worry – we’ve created the perfect guide of everything to include in your farm business plan.

3. PERSONAL CONSUMER CREDIT CHECK

• Verifies balance sheet information
• Credit history

4. FICO CREDIT SCORE

• Range from 300’s to 850’s
• Factors that impact credit score (types of credit, payment history, amounts owed, length of credit history, new credit requests) - Want to improve yours? Learn how to improve your credit score here.

5. PERSONAL CHARACTERISTICS

• Honesty and ethics
• Open and regular communication

The most common mistakes you can make getting a loan

Everyone always wonders about what major mistakes or situations to avoid when dealing with a lender.  If you are a beginning borrower, here are a few to keep in mind:

1. Running before you learn to walk.

You may not have gotten a loan before but you’ve done your research and you know exactly what kind of loan you need, how much and what your interest rate should be. Slow down! Share your new knowledge with your loan officer and be open to their suggestions. Experience sometimes says more than the math looks, so hear them out.

2. 0% Financing trap

If it sounds too good to be true, it probably is. Read the fine print, and then read it again. These zero percent financing programs usually come with a minimum required amount, a hefty interest rate and some tricky stipulations.

3. “I need money yesterday.”

Don’t wait until the last minute – this applies to both applying for a loan and talking to your lender about current loans. Submitting, reviewing and processing a loan application takes time. Being proactive will help you set more realistic expectations and give you time to be deliberate about what you need.

4. Overvalue assets by >10%

Everybody in business should think about their “exit plan.”  A loan officer evaluates both your debt repayment ability and your equity in the business to provide protection to both you as a borrower and the lender.  If you overstate your assets and face adversity or have a life change that results in your desire to exit the business, you may have fewer options when working with your lender or have fewer assets to rely upon during that life transition.

5. Fail to identify all liabilities.

A loan officer will make recommendations on loan structure and repayment terms based on your expected cash flow.  If you do not identify all of your liabilities and repayment obligations, your loan officer will not be able to provide you with the best recommendations to fit your unique needs.

6. Rate shopping

If you’re only in it for the rate, you could be signing yourself up to work with a lender that doesn’t completely understand your operation or doesn’t understand agriculture. Agriculture is a cyclical industry. Pricing and output levels aren’t guaranteed, so if a shiny low interest rate is all your lender cares about providing, you could be in a world of trouble if the market turns.

Setting realistic expectations can be difficult in our industry, but when you know what your lender is looking for in a loan applicant, the task becomes much easier.

Agriculture isn’t just an industry, it’s a way of life. We love what we do and we want others to love it just as much. When it comes to getting a loan for your ag operation, preparation is key to showing others the viability in your dream operation.

Buying land is like buying a home – there are many factors to consider when trying to pick a property that is “just right” and if you overlook something important, you could end up paying for it later.  Here are the things you need to know before buying land to build a house on.

LAND USE REGULATIONS & ZONING RESTRICTIONS

Your real estate agent or the listing agent should have a good understanding of that particular property’s limitations when it comes to county, state and sometimes federal regulations. Zoning will also dictate what you can and can’t do in a specific location, so make sure you familiarize yourself with these restrictions first.

SEPTIC AND WATER

Depending on the location of your property, you may not have access to public services like the sewer system or water, which means you’ll have to manage them yourself.

Septic systems are quite dependable long term and fairly easy to manage. You’ll have a few initial decisions to make regarding material (steel or concrete) and size, which will affect their longevity and how often you’ll need to schedule maintenance and servicing. Want to learn more? Mr. Rooter Plumbing has a great in depth comparison between septic and sewer.

When it comes to well water and drilling for wells, you’ll want to find a trusted local resource that can help you navigate the process. Drilling is really an exploration process of looking for a spot that provides enough water to suit daily and seasonal needs. To learn more about wells and groundwater use, check out The National Groundwater Association’s website.

TAXES

Taxes are going to vary by location, so it’s important to do your research on the properties beforehand. You’ll not only have to consider city and county property taxes, but you’ll also have to consider other taxes and fees, like transfer taxes and recordation taxes. Your local loan expert will be able to help you with identifying these depending on your situation.

FLOOD ZONES

When the sun is shining, your perfect property looks like the ultimate paradise, but what happens when it rains? Not only should you make an effort to see the property in adverse weather, but flood zones also mean an additional expense for flood insurance to protect your investment.

What’s the easiest way to tell if the property you’re looking at is in a flood zone?

Check out FEMA’s interactive map tool that will let you search by address.

AVAILABLE AMENITIES

If you’re looking to move to the country, we understand that it’s probably because you want to disconnect a little. In rural America, this can be a very literal reality as access to everyday amenities like cable and Wi-Fi can be severely limited. For some, this isn’t a problem. For others, like those that work from home or use certain technologies on the farm, you may want to start troubleshooting this issue before it becomes your reality. Make an effort to talk to some of the neighbors if you’re able or join a local online forum to discuss with those in the area.

Hopefully this list gives you an idea of what you need to learn before you buy land. If you have more questions, let us know! Our loan officers are the experts in land financing for Maryland, Delaware, Pennsylvania and the Virginias, and can point you in the right direction.

When it comes to buying land or a home with more acreage, the process can be a little more cumbersome than usual. Because the market is smaller and the prices are higher, sometimes real estate agents will require a loan pre-qualification before showing a property. 

We get a lot of inquiries from those looking to buy properties with acreage about loan  pre-qualifications and land loan pre-approvals - let us help you understand the differences between the two.

WHAT IS A LOAN PRE-QUALIFICATION?

A loan pre-qualification is a letter stating that you simply qualify as a loan applicant for an estimated amount and the individual property you’re inquiring about. In order to pre-qualify you for a rural property, we’ll request your name, address of the property and the property type. It is important to note that your credit will not be run, so the qualification for a loan amount doesn’t signify approval.

WHEN DO I NEED A LOAN PRE-QUALIFICATION LETTER?

A good time to request a loan pre-qualification is at the beginning of the buying process, when you're actively looking at properties and potentially ready to make an offer. During this time, you’ll discuss land ownership goals and any other potential financing needs with your loan officer. If your real estate agent is requesting a loan pre-qualification letter to view a specific property, it’s best if you know in advance, as these letters can take anywhere from one to three days to develop.

WHAT IS A LOAN PRE-APPROVAL?

A loan pre-approval is a more in depth and accurate indication of funding availability for a certain property. In order to get a loan pre-approval for a rural property, you’ll need to submit the same information needed for a loan application. This could include:

• Up to three years of tax returns
• A balance sheet or financial statements (assets, liabilities, including current loans, payment history, etc.)
• A copy of your driver’s license.
• Last 60 days of paystubs
• Copies of bank and account statements

If you’re ready to proceed with the purchase, you’ll also need to provide a signed sales contract. 

WHAT IS THE MAIN DIFFERENCE BETWEEN A PRE-APPROVAL AND A PRE-QUALIFICATION?

The main difference between a loan pre-approval and a loan pre-qualification is that a loan pre-approval will receive full analysis and outline the loan amount you could be approved up to, based on the purchase you are looking to make.

WHEN DO I NEED A PRE-APPROVAL FOR A LOAN?

A pre-approval for a land loan or mortgage loan will be needed if you’re looking to move quickly on a specific property or to make a serious offer. 

In rural America, no two properties are identical, and those classified as agricultural will be a little different from your run of the mill mortgage. A pre-approval for an agricultural land loan will be applicable to that individual property and no others. The loan pre-approval will translate into the loan application if you decide to move forward with purchasing the property. Please keep in mind that you may need to submit updated information if there has been a significant amount of time that has gone by between receiving the loan pre-approval and the acceptance of your offer.

Buying rural property can be confusing and overwhelming, but following through and owning your own piece of land makes the process worth it. We specialize in financing agriculture and rural America, so we’re ready to help you navigate this process with ease.

If you have a property in mind that you’re ready to call your own, give us a call today to speak with a loan specialist and request your loan pre-qualification or pre-approval.

Starting a business can be a roller coaster of emotional feelings – excitement to be on your own, finally following a passion, to the fear of the unknown, and anxiety thinking about what is needed to make it in the business. 

The best way to start, before jumping head first into a new venture that could change your world, is developing a business plan. This plan will help evaluate what you currently know about yourself and your future business, and help you communicate that to others. You’ll learn what is needed to make your business viable and profitable, as well as how to ask the hard questions to prepare for any bumps along the way.  Here are five tips for developing a business plan for your specific equine business.

1. Get Your Ideas Organized

Being organized is a virtue in life, but especially in a business setting.  Questions to ask yourself include “Why am I doing this?” and “What are my goals?”  Compiling a list of questions for yourself will not only help you evaluate what needs and wants you have for this new business, but also how to get there realistically. 

A business plan should look at the startup of the business through a minimum of five years of projections to consider all income and expenses your business will create.  Not only is this beneficial to you to be successful and keep you on track, but it also helps you when presenting your plan to others that will help you along the way (lender, attorney, financial adviser, etc.). 

2.Understanding Your Business Income and Expenses

At the end of the day, we need to know our numbers to be profitable and measure our success.  Being profitable means you covered all your expenses for the year and have funds left over to pay yourself and live the life you are dreaming of.  To do this, understanding your needs, not only financially, but accounting for literal everyday needs, will be vital in creating a successful business.

To start, make a list of all expenses you project your business to have (feed, bedding, labor, insurance, etc.).  Talk to similar businesses that are doing what you plan to do. Are you sure you are accounting for everything?  Always project a little higher on expenses to account for the unknown. That way, when major maintenance/repairs or other unforeseen issues arise, you already have a plan in place to account for those expenses.  Again, to be profitable is to plan for both the known and unknown.

Thinking about income, make sure to account for all income sources that will be part of the business (are you boarding horses, training, breeding, specialized care services, etc.).  They might not all be part of year one, but thinking long term into years two through five, there may be additional sources of income that have the capability to help offset expenses.  Make sure to have viable reasons as to why this income is projected to grow throughout the years. When compiling this information for a financial advisor or lender, they will need to understand your goals and how you plan to get there.

3.What Does Your Mission Statement Say About Your Business and Yourself?

You might ask – what is a mission statement? A mission statement is a formal summary of the goals and values of a company, organization, or individual. 

This is not something a lender or attorney would ask for per say, but something that should always be a part of a business plan to reaffirm what goals, values and services you are providing to your future customer base, who you wish to connect with, and how you plan to accomplish that.  Culture plays a large role in a mission statement, which in turn helps one to determine what the best fit for their business is, and how to shape that business around the right group of people to market your business to.

4. Ideas For Your Business Marketing Plan

Taking time to understand your target audience and business structure will allow you to develop a marketing plan that works for your needs and one you can stick to. Some items to consider would be:

• Where are your clients? Are they local and looking to be at your farm daily, or are they bringing in horses from across the state/country for your specific service? How will you reach them?
• Networking – Developing a network of trusted referral sources will strengthen your overall business. How did you get to where you are now?  Do you have a circle of close clients/friends who are able to refer work to you, or groups that have the same values in business as you do?
• Tell your story – The more personal you can be with your story and tell others how you started and what your business goals are, the more relatable you become to your ideal clients.
• Why would I want to bring my horse to YOU? – This will be an age old question moving forward in your specific business plan.  Why would someone want to take their horse, and its needs, to you?  What do you offer specifically that connects with their needs and values and develops trust in not only your business, but you as a person caring for their animal’s daily needs? 

5. Building Your Farm Resources

One other item to remember is your external farm resources.  These people and groups can (and should!) include your lender, accountant, attorney, and insurance professional (for your property, as well as liability for the business), just to name a few.  These people all bring different perspectives and expertise to the table to help you be as successful in your business as possible.  They have all seen businesses work and some that have not, so use them to your advantage and learn from their experiences to make your business sound and successful.

Third party perspectives can feel as if they are tearing your business plan apart and scrutinizing it. Take the constructive criticism and a step back at the same time.  Their goal is not to make you feel as if you cannot be successful in your new venture, but rather help you identify potential issues, and address them accordingly so they are not a problem down the road.

Although taking these first steps to develop this plan may seem overwhelming, remember: you have the passion, now you need the plan that will help you make it a reality.  Face your fears, talk to your resources, and don’t be afraid to ask for help.  Here at Farm Credit, we are more than a lender. We are a part of your community and a resource to help you become the successful business owner you have envisioned for yourself.

Getting a loan for your agricultural business — no matter the size or scope — means asking the lender to have faith in your ability to manage a full-fledged operation and your finances in a healthy way. The best way to prove that is by coming prepared with a farm business plan proposal.

No pressure, right? While it may seem daunting and scary, we’ve broken down the steps to writing the perfect business plan below. Read on to learn more and check out the end of this guide for additional resources to help you craft a top-notch business plan.

Creating a Farm Business Plan

You can set yourself up for success — both in business and with your lender — by having a detailed business plan for your farming operation. It doesn't need to be pretty, but you do have to prove that you're willing to put the time and effort into creating a well thought out course of action for your operation.

Are you already operating but don't have a plan? That's okay! It's never too late to put extra thought into how your operation will continue to fulfill your livelihood.

What to Include in your Agricultural Business Plan

Whether you're a new farmer looking for a loan, or a seasoned grower that needs funding for a new agribusiness, there are a few things that you want to make sure you include in your agricultural business plan.

Title/ Cover Page

Keep it simple on the cover page. The most important information here is accurate contact information so your lender can get in touch with you easily. Include your mailing address, phone, email, and fax if you have it.

Business Overview

Although it will be the first page of your farm plan, this will be the last section that you write, since it acts as a summary of all your key points in your plan. Remember that this is the first section that your lender will read, so they’ll expect to see all of the highlights that make approving this loan a good financial decision for both you and the lending organization. Include points about expansion plans, market opportunities, financial trends and projections in a short and easy to read summary. Treat this section as if you're telling a stranger about your operation and you want to give them an overview of what you do and what sets you apart from other businesses in your industry.

The What:

What are your key business objectives? In this part of your farming business plan, you'll want to describe your products and services your business will offer. 

The How:

Start by describing how your business will operate and include what makes your business unique. Provide details regarding the size of the operation, location, and note any expansion plans.   

The Who:

Who is your target audience? Who will benefit from your products or services produced from your farm business?   

The Why:

Think about the desire and drive behind why you want to pursue this business venture. It is common to connect your business why with your mission statement.  

If applying for a loan:

If you’re starting a new operation, clearly state how much money you are applying for, how you plan to use it and how it will make your business more profitable, thereby ensuring repayment. 

Creating your own farm business plan will take time and effort. As you complete sections, send them to partners or colleagues to review as you go along. If you have any questions on farm business plan examples or more specifically what lenders are looking for, give us a call. 

Business Management and Organization

Business History:

How long have you been in operation? Are you starting from scratch or did the business have previous owners?

Strengths and Weaknesses:

Describe the strengths and weaknesses of your business.

Implementation Timeline:

What is your plan of action? What specific tasks need to be completed in order to reach your business goals?  

Goals:

Goals are often broken into two categories — short term and long term. Short term goals are focused on actions likely to be achieved in 1-3 years, and long term goals are likely accomplished in 3-10 years, or beyond.  

Risk Management:

What risk management practices do you have in place? Think about your business contingency plan, insurance coverage, regulatory requirements, and your market and production diversification.   

Marketing

For some people, this can be the most fun or the most challenging part of creating your small farm business plan. Before thinking about your marketing tactics, think about the data you need to make informed business decisions. 

Market Share:

Researching your target market is key to understanding what opportunities are available in the marketplace. Is there current market share to gain? How will you remain competitive as a farm business? Who are your biggest competitors in the marketplace? Do you anticipate any obstacles?  

Income:

How will your farm business generate farm income? Think about how your product will be sold and priced? What is your projected or estimated income? How are you going to gain commitments and contracts to sell your products? 

Marketing:

What marketing strategy will your business use to reach your business goals? As a small business, will you utilize tools like social media, email marketing, and/or ecommerce to maximize your marketing efforts to connect with your target audience? Check out our blog on how to create a marketing plan for your farm and download a free template!

Financials

Arguably, the most important part of your agricultural business plan is how you will finance your operation. In this section, make sure to take time to complete your balance sheet. The balance sheet will identify your cash-basis income trend, breakeven analysis, and sensitivity analysis. This statement is a summary of what you own vs. what you owe. 

The income and expenses statement shows your business’ profit and loss over a period of time, determined by taking all the revenue and subtracting all expenses. This will show the profitability of your operation. 

Business Advisors

Business advisors are a group of professionals who serve as subject matter experts to enhance productivity, business, and on-farm profitability, while offering technical insight for your farm operations. Surrounding yourself with people who know how to support your farming venture will help to support and find your long-term business success. You will want to organize your team that might consist of an attorney, accountant, lender, insurance provider, and consultants in the last section of the business plan.  Did you know Farm Credit offers services for Accounting, Records, Payroll and Taxes, Appraisal, Business Consulting, Farm Succession Planning, and more? Give us a call at 888.339.3334 or view our full list of services here.

Congratulations! You’ve made it through each section of how to write your business plan! If you’re interested in more coaching on your business plan, check out the resources below or give us a call to connect with a local lender — we're happy to help. 

Additional Resources to Help You Write Your Farm Business Plan

Request your Business Plan Template and replay of our How to Write a Business Plan webinar here.

Click here to request a mentor with SCORE Small Business Resources.

At Farm Credit, we know agriculture and rural living. For over 100 years, we've been helping people like you achieve their goals of buying land, building their homes, purchasing farm equipment, and growing their agriculture businesses.

Let's talk about how to get a loan at Farm Credit, what Farm Credit loan requirements are, and what to expect through the application process.

How to Get a Loan with Farm Credit

When you're ready to make it happen, here's how to get a loan with Farm Credit:

1. Connect with a Loan Officer

Unlike other agricultural lenders, we know that your situation is different than your neighbors’. You need a personalized experience to make sure you’re making the right choice for you and your family. 

Right off the bat, we’ll connect you with a loan officer to discuss your goals. Whether it’s looking to build, buy land or grow your farm, our loan officers know all the right questions to ask to help you make the best decision for you.

2. Provide Documents (Farm Credit Loan Requirements)

Once we have a good idea of what loan is best for you, we’ll explain the Farm Credit loan requirements and begin the application process. Depending on what your goals are, you may need to provide:

• Business Plan
• Balance Sheet
• Three years of tax returns
• Bank statements
• Asset verifications like stocks, mutual funds, retirement account, etc.
• Pay stubs or YTD profit and loss statement
• Copy of your driver’s license

Your loan officer will review the complete list of items loan requirements with you, but it never hurts to start compiling them now!

WHAT HAPPENS AFTER I SUBMIT MY DOCUMENTS FOR A LOAN?

After we receive the paperwork required to evaluate your financial position, we will get started on the analysis. Your loan officer will work with our team to review your credit and financial position to develop a custom Farm Credit loan package that best fits your needs.

3. Receive Decision

Once you’ve been approved for a Farm Credit loan, you’ll finalize your loan terms and conditions, choose a settlement attorney, and obtain the necessary insurance, if applicable. During this time, your loan officer will order your appraisal and the processor will contact your closing attorney.

If you are not approved for a Farm Credit loan, ask your loan officer what you can do to improve your application in the future - they're here to help you!

4. Receive Loan Closing Information

Once you're comfortable with all terms and conditions, you’ll work with your loan officer to schedule the time, date and location for your loan closing. They’ll also let you know what you need to bring with you to settlement. Ask your loan officer about DocuSign so you can sign your documents on the go from your truck, tractor or anywhere you have internet access!

5. Close Your Loan

Hooray! You made it to closing – now what? Once you sign your Farm Credit loan paperwork, here are some tips to keep the “after” part easy:

• Keep in touch with you Farm Credit team – they’re here to help you!
• Keep insurance and taxes paid, and property in good repair.
• Set a reminder to send updated financial statements and tax returns each year.
• Make your scheduled payment (Ask us about Digital Banking and other auto-payment programs).
• See what other services we can help you with including Accounting, Records, Payroll & Taxes; Crop Insurance; Farm Succession Planning; and more!

The loan application process can seem tedious at times, but once you’re sitting on your new front porch or running the numbers to see how your operation has grown, you’ll realize that the journey was worth it.

And the best part? You don’t have to do it alone.

Contact us to connect with a loan officer and let us know how we can help you make your dreams come true.

*This article was originally published on 1/3/2021 and updated as of 7/6/2023.

The process of buying land and building a house can be confusing, especially if you’ve never done it before! We'll teach you the difference between land loans vs. mortgages, and we'll introduce you to the financing options available for buying land to build a house. If this is your first time purchasing land to build a home, make sure to check out our article about things you need to know before buying land to build a house.

Is a Land Loan the Same as a Mortgage for a House?

There are different ways to finance the property and the construction of your home, and your lender will be able to help you choose what fits best for your financial situation. But first, it's important to understand that a land loan is not the same as a home loan. While there are some similarities between the two, there are also some important differences.

Differences and Similarities Between Land Loans and Home Loans

Let's first start with the similarities between land loans and home mortgage loans.

BOTH LAND LOANS AND HOME LOANS:

• Require a mortgage to be placed on the property.

• Offer fixed interest rates.

• Require an appraisal and a title company or attorney for settlement, depending on the state.

• Have a similar purchase process in terms of either working with a realtor to find land and with the seller to negotiate price and sign a sales contract.

DIFFERENCES BETWEEN LAND AND HOME MORTGAGES:

• Lenders require a larger down payment for land loans as opposed to traditional home mortgage loans. With home mortgages, downpayment requirements can vary based on the type of home loans. But, for a land loan, the down payment is typically a non-negotiable 20%.

• Interest rates for land loans are typically higher than interest rates for home loans because land loans have a higher default rate.

• The maximum length of a land loan is typically shorter than the maximum length of a home loan. For land loans, if there's no home on the land the loan term can extend to up to 20 years, depending on the loan amount. While home mortgages can go up to 30 years.

• With land loans there's additional costs involved with preparing the land for building including site prep and percolation test.

Frequently Asked Questions About Land Loans

Now that we know the difference between home loans and loans for land purchase, let's dive into some frequently asked questions around land mortgages.

What are the typical down payment and loan terms for land loans?

The required down payment for land loans is usually 20% of the purchase price of the land. Conventional financing is more flexible and can require as little as 5% down.

Are land loans higher risk than home loans?

Yes. Land loans are a higher risk for the financial institution because there is typically no existing structure or home on the property. That's why loan terms are shorter and down payments are higher. When someone purchases land, they often already have an existing mortgage or rent payment. If financial difficulties were to occur, that person would be more likely to default on a land loan with no structure instead of their mortgage or rent – in fact, this is why most lenders don’t finance bare land!

When I go to build my house on my land, can I use any of the current equity I've accrued towards the down payment and closing costs?

Yes!, If you got a land loan and didn’t build your house right away, you are able to use the equity in the land towards down payment and closing costs when going to build your home. 

Once you apply for the construction loan, a new appraisal will be done that will assess a value on the land and the proposed new home based on your construction contract and plans. Farm Credit can lend up to 95%, depending on the program, of that newly assigned value. Since land purchases require 20% down, it is possible to not need any additional funds when going to build since the closing costs can be financed if there is enough equity.

Is it cheaper to buy land and build a home than to purchase a pre-existing home?

Sometimes. When building on land that is already owned, it can be less expensive than purchasing a pre-existing home. However, this will depend heavily on factors such as your local market, the cost of materials at the time, and the type of home you are building.  

Typically, when purchasing a home that is already built there will be less out of pocket expenses since you can purchase an existing home for 5% down, plus closing costs with only one settlement. When purchasing land and then building a home, there are usually two settlements, one for the land and one for the construction along with other expenses such as preparing the land for construction. 

If I'm buying land now, is it cheaper to also build my house now?

Sometimes. Typically, buying land now and building right away will be cheaper than waiting to build.  However, it depends on many factors like current interest rates, the cost of construction materials, and the cost of living expenses incurred while the house is being built. Also keep in mind that construction can take up to 12 months for the new home to be completed and be ready to move in. You will need to plan for where you will be living during the construction phase, especially if you plan on selling your current home to help fund the construction of your new dream home, since this will need to be done before the construction settlement.

Many builders advise that you consider the state of the economy when deciding when to build on your land. For instance, look at interest rate trends and construction material cost trends - like the price of wood. If there are high interest rates, which can be lowered with a refinance, any savings might be negated by a rising cost in construction materials. Our blog Can I Buy Land Now and Build Later? goes into a little more detail on this topic. 

Can I buy land and build a home with one loan?

Yes, you can buy land and build a home with one loan. This type of loan is typically referred to as a Construction to Permanent Loan (C2P).

To apply for a C2P loan with land purchase, you will need a completed construction contract, blueprints, and specifications before making your offer on the land purchase. By doing so, both the land purchase loan and the construction loan can occur at the same settlement. We understand there is a lot that goes into finalizing the construction documents with the builder, which is why most of the time people typically purchase the land and then do a construction loan. This helps to secure the lot and allows time to finalize details with the builder with much less of a time constraint. If you are in a situation where you have the builder documents ready to go and are just waiting for the right lot to come along, then C2P with land purchase may be a good fit for you!

What are my options with Horizon Farm Credit when building?

Here at Horizon Farm Credit, we have experts available to help find the best financing solution when building your dream home. We can help finance all types of homes such as stick built, modular, doublewide manufactured, and even Barndominiums, which are pole buildings that include living space and are becoming quite popular in rural areas. 

We can help pre-qualify you before you even talk to a builder so you know what monthly payment and amount out of pocket you can expect when selecting your home. We will be with you every step of the way through finalizing the contract and plans with the builder to ensure all costs are accounted for, to moving in and making your dream a reality.  We are happy to answer any questions you may have so please do not hesitate to contact your local office or loan officer!