If you thought the farm search itself was the hardest part, well…I’m sorry to say you’re wrong, dead wrong. With the inspection behind us, our only remaining concern is the loan. And I gotta tell ya, finding a loan for a farm is next to impossible – unless you have oodles and oodles of cash lying around, that is.
Even with the proceeds of a fairly lucrative real estate flip here in the historic Philly-bedroom-community of Doylestown, PA, we didn’t have enough cash for the 20% down required from most lenders for ANY property over TEN acres. Ten acres? Yep, if it’s more than 10 acres, it’s a “rural property” and extremely difficult to finance. As far as we can tell, the good ‘ole 80-10-10 that your parents probably got on your childhood home simply doesn’t exist anymore.
If it’s just land, that’ll be 35% DOWN (as in CASH, and don’t forget the 12-15% in closing costs on top of that).
Oh, it has a house? Well, then the house must be at least 51% of the total value of the property. So, for example, if you’re looking at 100 acres listed for $700,000 (which by the way, is a helluva deal if it’s anywhere your potential customers live), the house has to appraise for at least $350,000. Say it’s a quaint little old farmhouse in need of some TLC but totally “livable” – sorry, folks. NO LOAN. What if it’s in really great shape but all your neighbors’ homes are WAY better or, worse, mobile homes? Sorry, NO LOAN. Everything’s kosher but the home’s water supply is from a spring instead of a well (as is quite common in RURAL America, you know, where the farms are)? NO LOAN.
Believe me when I tell you that we called EVERY SINGLE BANK in Central Virginia. Of course we started with the “big banks,” but since they sell everything to Wall Street they were probably saying things like, “well, bless their future-farmer hearts” to each other after hanging up with us. Thanks a lot Fannie and Freddie and your total mis-handling of real estate in America. Anyway, we tried regional banks – also too big. We called all the mom and pop banks we could find, and finally found one that would help us out. And before you say, “What about Farm Credit??? Isn’t that kinda their SCHTICK???” We called them too. 20% down. No exceptions. Our lender, CornerStone Bank, out of Lexington, agreed to do 10% down with a slightly higher mortgage rate than more “traditional” loans.
I’m telling you, folks, if I ever get into politics, it will be over this very specific issue. Lending and mortgage rates and BS WALL STREET requirements passed down from Fannie and Freddie because of their own bad behavior are making land ownership difficult to impossible. Productive farm land is being lost acre after acre to big-pocketed developers and “gentleman farmers” because it’s TOO HARD TO BUY unless your uncle’s last name starts with M and ends with ONEBYAGS. And THAT is a tragedy. It’s pathetic. And it gets me fired up.