How does one finance a farm?

My wife & I found a parcel of land (finally) in KY. However, while we were discussing the deal with the owners, they said something about financing on a farm (60 acres) was different than a mortgage on a house. This is the first large parcel of land I have ever purchased and this revelation of “difference” caught me off guard. I had been planning to work the financing deal with the large national company that I have my home mortgage through. Now I am not even sure that it is the same!

I do not know if it makes any difference, but the property has a building (large pole structure with a poured cement floor, water, septic, and all utilities).

Can any one with knowledge of financing large parcels of rural property please offer advice on where I should start to look for financing this deal?

I never knew that it was different unless you are looking at a working farm. My in-laws bought a 300 acre farm in New Hampshire with a regular mortgage. Even in the semi-suburban area of greater Boston where I live, some people have large tracts of land. We have 2.5 acres but it seems much bigger because the neighbors on one side have 80 acres and the ones on the other have 30 acres. People buy 100+ acres routinely in many parts of the country. The only problem I could imagine is if you tell them you plan to pay for the farm from actual farming. That is a little risky but just owning that much land doesn’t seem to be a problem.

There’s a whole set of lending guidelines for financing a farm, quite similar to the guidelines for financing a business. In particular, it’s a business loan with a substantial fixed asset to loan against.
Ask a banker in a town that services an outlying rural community, they’ll talk your ear off about it.
An older banker in one of those areas has a good feel for how the farming business works, and for how high of a debt load a given farm can service without getting into trouble.
I assume you can get a standard mortgage on your property.
Bear in mind, the rules for some government loan programs assume you’re financing a single-family residence. If your property is a wholly speculative purchase or a business location, you may not be eligible for certain government-backed loans.

Yeah - this is not going to be a “working farm”. I am buying it with the intent of eventually moving there. My income comes from elsewhere, so its not a business loan. Rather, just a loan on a parcel of land that happens to be 60 acres in size. Sounds like I may have been correct in the first place: this is a mortgage, not a farm loan.

I think buying undeveloped land is usually different than buying a house, because most of the value in a home are the improvements on the land, rather than the land itself. One company locally that advertises lending on farms and farmland is Farm Credit Services. I don’t know how they compare to regular lendors, or how difficult it is to get a loan for unimproved land.


Fundamentally there is no difference between financing a residence, a working farm, a hobby farm (which is what your’s sounds like) or a second home in the woods. The financing agency, whether it is a local bank, a national bank, a credit union or something along the lines of the old Federal Land Bank (now Farm Credit Services”) will look at the same three factors — the Three Cs – cash, collateral and character. The paperwork will be the same, too – an application with cash flow and income and debt verification, an appraisal, a promissory note and a mortgage pledging the farm as collateral for the debt recited on the note. Just what your lender thinks of your particular Three Cs will determine the terms of the note and the mortgage, the length of the note and the interest rate and the frequency of payment, whether real estate taxes and insurance costs are included in the mortgage payment or not, and the amount of down payment…

Let me suggest that you might be better off dealing with your regular banker rather than going to a lender in the vicinity of the farm or one of the big national lenders. Your banker ought to already know about your credit worthiness and they can figure out the value of the collateral ( the farm) easily enough. If you get past the cash and character factors the collateral factor gives the lender a minimal risk. After all you aren’t about to pick up 60 acres of woods and pastures and haul it away in the dark of night. That is why banks love real estate loans – the banks risk of loss is pretty minimal.

I’m currently in the process of collecting more information on how someone with a small amount of farming experience gets financed for a small, working, family farm. My current business venture is moving along nicely, but in the near future we’d like compliment and expand it by moving into a homestead-type farming venture.

If you find you need farming-related financing, you might try searching out your state’s farm credit bureau here: For example, my state’s farm credit service provides help, not only with working or hobby farms, but with “Rural Community Financing” and “Rural Property Investment Financing” to “fund economic and development needs of rural communities” and to “purchase sporting ranches and other recreational investment properties” which might be in line with your needs. You might find there are special resources for buying rural properties, and we even have grants available for “rural community projects that focus on improving rural communities” in the Pacific Northwest. Good luck!