Now that you’ve decided to purchase a Kentucky horse farm it’s important to know that there are some differences between financing a horse farm and residential real estate. Before you begin you will need to know how you plan to use the farm.
Will your farm be classified as a “working farm” (actively being used for crop production and/or raising livestock)?
Not only will this help you and your REALTOR® identify specific property features but it will also help you determine what type of financing options are available to you.
How is Financing Different?
There are several differences when it comes to financing a Kentucky horse farm.
To start, if there is a residential house on the property you may still qualify for a residential mortgage.
If not, you may need to explore farm financing. This type of financing is only available for agriculturally zoned properties, so land used for growing fruits and vegetables or raising livestock.
Loans through farm credit are bonds issued by the Farm Credit Funding Corp. These bonds are considered to be risk-free as they are backed by government sponsored equity.
Interest rates for farm financing are determined by Farmer Mac rather than Fanny Mae. If your farm will be used for business purposes you may qualify for a commercial loan or mortgage. These loans are typically harder to qualify for and offer a higher interest rate.
There may be additional tax deductions. If your farm will be classified as a “working farm”, it is considered a business which would mean the mortgage interest may be considered a business expense. An accountant or tax professional can review and help assess potential deductions and implications.
If you are a first time farm purchaser, you may qualify for special programs for down payment assistance.
Preparing for Kentucky horse farm financing
With any property purchase you will want to know how much you can afford and purchasing a farm is no different. Farm expenses can accumulate quickly and without adequate cash flow can strain finances.
Explore your different lender options.
Many banks and financial institutions will offer loans for farm property through the Federal Agricultural Mortgage Corporation. Some banks and credit unions may have their own inhouse farm financing programs. You may want to ask lenders about their experience working with loans for non-conforming properties.
The Farm Service Agency is in the US Department of Agriculture and offers a mix of personal and business loans that may be suitable for needs.
Your lender will want to know what your current salary is and how much you owe. This will determine how much they will be willing to loan you.
Even if you do qualify for a business loan, it may not be the best option as they typically have higher interest rates.
Before You Apply
Do whatever you can to make sure that your credit is as good as possible.
Have your down payment ready. Lending institutions will expect a minimum of 15% of the purchase price but some may be as high as 50%. If you are a first-time farm purchaser, you may qualify for programs that assist with down payment.
Know what type of financing you will need. Do you need more than a property mortgage? If you need to finance farming equipment you will want to secure your residential financing prior to setting up financing for farm equipment.
Finally, your lender will want to know that you know how to run a farm. You will need to provide proof that you have experience working on and running a farm or agricultural property or running the business operations of a farm 3 out of the past 10 years.
Owning a Kentucky horse farm can be one of the most rewarding purchases in your lifetime. Read a few of our best tips for new farm owners.
Contact Turf Town Properties and let us guide you through purchasing your Kentucky horse farm. Or if you prefer, simply call us at 859-608-8039.