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One of the first questions asked when inquiring about a farm loan seems to be “how much down payment is required?” Our answer, “it depends”. Five factors go into evaluating a loan application. The down payment is determined by a combination of these factors and the details of your loan. Here is a quick list of the additional factors that determine your down payment:

  • Type of buyer
  • Frequency of payment
  • Collateral​

Type of Buyer

The property financed and how you plan to use it helps us determine buyer type. Here are the most frequent types of buyers that we see.

  • Full-time farmer – agriculture is their main occupation; at least 50% of their income is from farming.
  • Part-time farmer – often works off farm during the day and farms on evenings and weekends.
  • Other farm related – this person is buying agricultural property for recreation or as an investment. Their income is not dependent on income from agriculture.
  • Rural resident – this buyer wants to live in the country but does not want to farm or generate farm income.

The type of buyer you are plays into the amount of down payment because a full-time farmer has different loan needs than a rural resident.

Frequency of Payment

Our staff will work with you to determine the best payment schedule to fit your needs. Farmers, full-time and part-time, may want annual, quarterly or semiannual payments so that their payment is due when their production is sold. That said, a person making a monthly payment on their loan may be asked to provide a smaller down payment because they will be paying on their loan more frequently.

Collateral

In some instances, collateral can work as part of the down payment but it depends on the type of collateral. If someone is purchasing a home, the home is already serving as collateral to secure the loan.

In a land or agricultural property situation, if collateral is going to function as part of the down payment, it must be in addition to the land value. Keep in mind ag real estate prices are good right now, just because you pay $7,000 per acre for a piece of land, doesn’t mean it can be financed for $7,000 per acre. You may have to put additional land up as collateral to finance that loan.

Can my car or truck act as collateral? Not for a land purchase, we prefer land serve as collateral on a land loan. However, on an equipment loan, other equipment, a car or truck may be able to serve as collateral.

As you can see, many factors go into determining a down payment. Our lending specialists can discuss options available to you. Complete this form to contact a lending specialist.

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