By Madison, Ag Lending Group
Short answer: Most lenders want 20% to 35% down to buy farmland. You can sometimes put down less if you pledge equity in land you already own, qualify for an FSA program (FSA's Down Payment Loan Program asks the buyer for as little as 5%), or the seller carries part of the price.
That range is wide on purpose. Two buyers looking at the same 320 acres can get very different answers, and the reasons why are worth understanding before you make an offer.
Why Farmland Takes More Down Than a House
A house loan is built around your paycheck. A farmland loan is built around the land and the operation. Lenders know ag income moves with weather, prices and input costs, so they want more of your own money in the deal as a cushion.
Most ag lenders lend somewhere around 65% to 80% of the appraised value on farm real estate. Whatever they won't lend, you cover. That's where the 20% to 35% comes from.
What Moves Your Number Up or Down
Your balance sheet. Strong working capital and low debt show a lender you can ride out a bad year. That can get you closer to the low end.
Your track record. Years of farming, steady income and clean books all help. A first-time buyer usually sees the higher end, unless an FSA program is part of the deal (more on that below).
The property. Productive cropland with good water usually gets better terms than raw ground, timber, recreational land, or a place where most of the value is in the house.
How the land pays for itself. If the ground cash-flows on its own (rent, crops, grazing), lenders get more comfortable. If you're buying mostly for lifestyle, expect to put more down.
Ways to Put Less Cash Down
Pledge equity you already have. If you own other land free and clear or with a lot of equity, a lender may take a lien on it instead of asking for all cash. You keep your working capital, and the new purchase gets financed with little or no cash down. Just know you're tying the two properties together, which can make it harder to sell or refinance one of them later. Ask how and when that lien can be released.
Use an FSA program. USDA's Farm Service Agency has a Down Payment Loan Program for beginning and underserved farmers where the buyer puts down as little as 5%. FSA-guaranteed loans can also help a commercial lender say yes to a smaller down payment. We work with lending partners who do FSA-guaranteed loans, and our beginning farmer and rancher loans page covers the basics.
Ask about seller financing. Some sellers will carry a second note for part of the price, especially retiring farmers who'd rather get paid over time. A lender has to sign off on it, but it can close the gap.
Use a bridge. If your down payment is tied up in a place you haven't sold yet, a bridge loan can let you use that equity now. Our post on farm bridge loans explains how.
A Quick Example
Say you're buying 200 acres at $1,000,000. At 25% down, you'd bring $250,000. If you own 80 acres free and clear worth $400,000, a lender might take a lien on that ground instead, and you might bring far less cash, or none, to closing. Same purchase, very different check.
Before You Make an Offer
Get a rough idea of your borrowing power before you fall in love with a place. A pre-approval takes a few minutes.
Pull together three years of tax returns, a current balance sheet and a projection for the operation.
Don't drain your working capital to hit a bigger down payment. Lenders look at what you have left after closing, too.
Let's Find Your Number
Growing up on an orange and almond orchard in Central California, I learned that land is the biggest bet most farm families ever make. You deserve a straight answer on what it'll take before you sign anything.
If you're eyeing a piece of ground, reach out and tell me about it. We'll look at your down payment options, shop the deal to the lending partners that fit, and give you an honest read. No suits. No ties. No lies.
About the author: Madison grew up in agriculture, turning irrigation lines in her family's orange and almond orchard in Central California. Today she helps farm and ranch families across the country find financing that fits their operation at Ag Lending Group, a family-run farm financing advisor based in Phoenix that has been working with producers since 2016. Get in touch.
