August 21, 2013
I never really thought too much about the phrase “bought the farm” (meaning, to die) until I actually had to purchase a real one. But dealing with banks to secure financing for our home on a farm nearly made me “buy the farm”—and I daresay I am not the only one who has experienced the substantial frustration I’m writing about. How are young, new farmers supposed to be able to do this?
Farms are not necessarily hard to come by, if you have the money for them. A quick search for farms for sale in Olmsted County, Minnesota, where I live, turns up 47 different parcels of land, ranging from five to 200 acres. The cheapest parcels start at $47,000, but these don’t have a house on the property and building one can be costly. The most expensive land comes in at around $1.6 million. Of course, land prices are soaring in my neck of the woods now. Corn is selling at historically high levels. Farmers are converting everything they can into cropland, removing parcels from the Conservation Reserve Program and planting in highly sensitive and erodible soils that they had earlier been convinced to leave alone. So, unless someone in the family has a steady, off-farm job (85 to 95 percent of farm income comes from off-farm sources), purchasing land remains a dream for many who want to get into farming.
Agricultural land is dealt with differently than non-agricultural land in the real estate market. This makes some sense. Farming is a riskier business than, say, working in a cubicle. But it is also one of the few businesses that puts food on everyone’s tables, so it has an important social purpose that fills an essential need for all of us. When we first decided to buy our property, I called six different local banks and credit unions to inquire about our eligibility to receive a loan and the terms that would be involved. At first, none of them, not even the ones who specialized in agricultural land, were able to propose something that would work for us. We were offered, for example:
- 4.625% on a 20-year loan with 15% down
- 5.5% on a 20-year loan with 5% down
- 3.7% for a first mortgage with a 10-year balloon plus 4.875% on a second for 10 years
Not exactly as secure and doable as a good old-fashioned 30-year fixed mortgage with a standard residential interest rate, which, when we bought the property in 2013, was around 3.5 percent. It’s hard to compare apples to oranges, but the difference between some of these rates and standard ones can amount to thousands of dollars—enough to buy a good tractor!
Besides this, you would have thought that no one had ever purchased a farm before, with all of the little quirks that come with land that has been passed down and divided among relatives for generations. Every time that we thought we had settled the interest rate problem, the bank would come back to us with a new issue, indicating that they wouldn’t be able to give us a reasonable rate after all:
“We didn’t know that there is land on either side of a road; you aren’t eligible for Fannie or Freddie now.”
“We didn’t know that you won’t have legal access to the parcel on the other side of the river; you aren’t eligible for Fannie or Freddie now.” (Never mind that people had been accessing it via the neighbor’s land for decades. Handshakes can go far in this neck of the woods.)
“It doesn’t matter that you both have off-farm jobs and that farming won’t be your primary source of income. It’s agricultural land. You have no choice but to accept these sorts of terms.”
“Excellent credit, schmexcellent credit. If you were buying in town, you’d be golden.”
And on and on.
The sheer amount of time, energy, and grit it required to go back and forth with the banks over all of this was mind-boggling. I kept thinking, “How in the world do young farmers who haven’t had the benefit of working and saving up for 20 years purchase land?” The answer is that if they are of modest to average means, they usually can’t.
Still, new and beginning farmers are devising all sorts of ways to make a go of it. Many of them are renting land or managing someone else’s farm until they can save up a nest egg to buy their own. And if every bank on the planet has turned you down for a loan, the Farm Services Agency has a terrific, super low interest loan for you, but you still need to have enough cash to buy.
As a nation, we really ought to make this easier, and here’s why. The average age of American farmers is now 57 years. And while the number of farmers has been increasing for the first time in decades, there are not enough to replace those who will be retiring, so we need to better help these new farmers get established. This means finding ways for them to buy land that won’t create such a financial burden that they can’t feed themselves decently while they’re feeding everyone else. The National Young Farmers’ Coalition website has a list of great resources for new farmers seeking jobs and innovative ways to access land in the meantime.
And what happened with us? In the end, I am happy to report that it all worked out fine. We were able to secure a low interest rate with the terms we desired after threatening to take our business elsewhere. But I nearly “bought the farm” in the process.
Photo: Angela Smith, 2013.
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