The Farm Service Agency has a new Land Contract Guarantee loan program to assist with the transfers of farm real estate. This has been a pilot program in six states for the past three years.
The goal of the program is to provide an alternative for intergenerational transfers of farm real estate through a land contract sale.
Eligibility for the Land Contract Guarantee program is limited to beginning farmers and socially disadvantaged farmers. Eligible applicants must have participated in the business operations of a farm for at least three years of the last 10 years.
The basic eligibility for the program is consistent with other Farm Service Agency Farm Loan program regulations. Eligibility for the Land Contract Guarantee program is limited to family farms, which are farms in which the majority of the labor and management are provided by the farm family.
The guarantees can only be used for financing the purchase of a farm on a new land contract. The guarantee cannot be used for an existing land contract.
There are two options available for the Land Contract Guarantee. One is the standard FSA guarantee plan where FSA will guarantee an amount equal to 90 percent of the outstanding principal under the land contract.
The other option available is a “prompt payment guarantee plan” where FSA will guarantee an amount not to exceed three amortized annual installments plus an amount equal to the related real estate taxes and insurance during the period covered by the annual installment.
The guarantee period is for 10 years. The land contract payments must be amortized for a period of 20 years and cannot have a balloon installment due in the first 10 years of the contract.
The interest rate charged by the seller must be fixed at a rate not to exceed FSA’s direct farm ownership loan in effect at the time the guarantee is issued plus three percentage points. The buyer must provide a minimum down payment of 5 percent of the purchase price of the farm.
To qualify for a guarantee, the purchase price of the farm to be acquired through the land contract sale cannot exceed the lesser of $500,000 or the current market value of the property. A guarantee will not be issued if the appraised value of the farm is greater than $500,000.
Both the seller and the buyer must apply for the Land Contract Guarantee program. The seller will have to select an escrow agent or servicing agent to handle the land contract payments and servicing the contract.
The value of the real estate to be purchased will be established by an appraisal obtained by FSA. Additional information on Farm Service Agency guaranteed loan programs can be obtained by contacting your local Farm Service Agency county office or visiting the FSA website at www.fsa.usda.gov and clicking on “Farm Loans.”
That’s all for now,
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