Jane & John have decided they want to buy a farm. They plan to raise hay and cattle on their farm. The couple has been married 10 years and owns their house in town.
When they obtained the mortgage for their current home, they remember providing some tax returns and a current pay stub. They assume this is all they will need for a farm loan too and are very surprised when their lender asks for more information.
A farm loan is different from a traditional mortgage because you have the potential to earn income off the farm property. This income is taken into consideration when the credit staff evaluates a potential borrower.
What information will my lender need?
Personal Contact Information
- You will provide this on the lender’s application but be sure to complete all of the information correctly. Include a daytime phone number and email address so that it is easy for them to reach you if they have any questions
Income Information
- Employment – Provide the name & address of your employer as well as the years employed with that company. If it is a joint application, this information will have to be provided by both parties.
- Recent Paystub - A copy of a recent paystub from anyone listed on the application.
- Tax Returns – You will need to provide copies of three previous years’ tax returns.
Financial Position
- Financial Statement – The lender will need a current financial statement. This is a list of all assets and liabilities for all parties that will be liable on the loan.
- List of All Assets
- Provide statement copies of all checking, savings and money market accounts and CDs.
- Stocks, bonds and the current value of any retirement account.
- List any vehicles, including recreational, owned. If you are a current farmer, you will need to provide an inventory of any farm or construction equipment that you own. Be sure to remember any boats and campers.
- Value of any additional real estate owned. This will include:
- Your home
- Any vacation home
- rental properties
- vacant lots
- investment properties
- other farm land
- List of All Debts – This includes any cosigned or guaranteed debt. You will authorize your lender to run a Credit Bureau check when you submit your application so be sure to list all of your debts and tell them about anything that might come up in advance. You will need to include the current principal balance, the interest rate you are paying, the frequency you make the installments and the amount of your payment. Be sure to include all credit card balances.
New Farm or Rural Property Information
- Real Estate Contract – This is needed when you find the farm or land you want to buy.
- Income & Expense Projections – We mentioned above that receiving a farm loan is different from a traditional mortgage because the farm has the potential to generate income & help pay for itself. You need to provide your lender with a list of the potential income and expenses you anticipate on an annual basis to make sure everything will cash flow. This may include additional borrowed capital for operating, machinery and equipment or livestock to stock your farm. This information will be needed as part of your application.
- Crop Insurance Documents – If the farm has a row crop operation, any production records you can provide will be helpful in determining the cash flow. These can be obtained from the previous owner if they carried crop insurance. You will also need to consider carrying some type of production insurance.
Additional Entity Papers
- If you own 50% or more of another entity, you will need to provide the same information listed above as well as:
- Entity Operating Agreement
- Articles of Incorporation
- Partnership Agreement
- Certificate of Secretary
- Certificate of Good Standing
- Trust Agreement
This may look like a long list to receive a farm loan but because a farm is also a business providing these documents get you off to a great start on your farm’s business plan. One thing to keep in mind, if your farming operation is complex with multiple entities, there may be additional documents needed.
