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Getting a Mortgage on the Farm - Running into Commercial Concerns

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  • Getting a Mortgage on the Farm - Running into Commercial Concerns

    So we're finally at the point where we can begin to dabble looking for our own place. We just happened to come across a nice property that has some potential and since our current home is FINALLY under contract I thought I'd make some calls to start looking into mortgage companies. Almost every company I've called is not interested in financing the property because it has the potential to produce income ie boarders or our own horse business. Two years ago we briefly talked with some companies when we decided we needed to eventually get our own place and this issue of an income producing property never came up. My father said he ran into issues when they tried to refi, they keep a couple horses for others, but don't really have a big place. They have yet to find a company that will refi their current place that they've had for 10+ years. The company they are with also said they wouldn't refi them b/c they are now classified as commercial.

    I'm curious to know how others have gotten around this. A commercial mortgage is a whole other ball game and really not one we could play now. I'm curious what mortgage companies may have financed your farm with the known fact that you would board horses or be an income producing property. It doesn't seem to matter that I don't have boarders, the fact that I breed and sell and file a Schedule F, has sent many of the companies I talked to packing. Help!

  • #2
    Talk to Farm Credit.http://www.farmcreditnetwork.com/
    Brothers and sisters, I bid you beware
    Of giving your heart to a dog to tear.
    -Rudyard Kipling

    Comment

    • Original Poster

      #3
      Originally posted by JSwan View Post
      We did - they won't do it They would if it were a farm, like dairy cattle or something, they don't consider horses in this situation.

      Comment


      • #4
        http://www.agstarhome.com/Loans/Hobb...s/default.aspx

        Try them
        Fullcirclefarmsc.com

        Comment


        • #5
          Call around to some local banks. I was searching for an option to the AgCredit in this area quoting me over 7% for the 62 acre farm. I did enough calling that I found a local that is going to carry our mortgage. They are going to keep the loan in house as opposed to selling it, as what most banks end up doing. Lots of phone calls may get you somewhere...

          Comment


          • #6
            If you strike out with Farm/AgCredit then you have a problem as they are routine ag. lenders. They are "goosey" about equine operations because they are routinely poorly managed and routinely don't make money. Our AgCredit office manager told me that they had less than five equine operations financed and that was because of the credit worthiness of the buyers. Horse people, it appears, are often poor credit risks.

            Another possible source of financing are credit unions. The big ones around here will finance ag properties and keep the loans in house. Of course, again, the credit worthiness of the borrowers is a prime issue.

            Commercial banks are a possibility, but a slim one. Any of the "chains" will likely be a no-go, but a local, independent bank might work with you. Credit scores, again, are critical.

            A hard economic truth is that the U.S. horse industry has been in decline for several years and is not showing signs of significant improvement. The demographics for equine businesses suck unless you're at the pinnacle of some specific, high dollar discipline (TB racing, for example).

            Good luck in your quest for financing.

            G.
            Mangalarga Marchador: Uma Raça, Uma Paixão

            Comment


            • #7
              What you do with your property after you purchase it is your business

              All you really have to do is prove you can afford the mortgage. If you are counting on "income" to get the numbers to work, that's where you'll run into trouble.

              Now, if you then turn it into a commercial enterprise, you will likely not be able to refinance it later on, but money is very cheap right now, get a long term fixed rate.

              The second you put a "pay horse" on the property however, you do need commercial insurance.

              So since all you want to do is have your own horses at home, that's all the conversation you need to have.

              Keep in mind that bare ground isn't worth all that much, the value will need to be primarily in the house. They'll use comps to appraise it for the mortgage value. If there aren't any comps (and they have very specific specifications for comps) in your area, it will be much more difficult.

              Unless you don't need financing, financing a horse business is almost impossible. And if you are making income from horses now, it's going to be tough to prove it isn't for a commercial business.
              Last edited by 2ndyrgal; Feb. 12, 2013, 12:05 PM. Reason: missed the part where you are already commercial

              Comment


              • #8
                http://www.agstarhome.com/Loans/Hobb...s/default.aspx
                They do them. I talked to them when I was shopping and they seemed like it would be very easy as long as you meet their requirements.
                Fullcirclefarmsc.com

                Comment

                • Original Poster

                  #9
                  Lots of calls out, not finding much. Most lenders, even the local banks flag it as commercial. We are not relying on the income we'd generate to qualify for the loan, but simply because the property will produce income they don't want it in their portfolio and Freddie Mac/Fannie Mae won't back up loans w/a commercial property. The property is just large enough that it would appear commercial even if that was never our intent. It's an in the middle property too big to be residential, too small to be a real commercial operation. I guess if it's meant to be something will come through otherwise we'll have to keep searching. Just a very frustrating process. Five years ago it would not have been this hard to get a loan on a property like this, the banks have really screwed people.

                  Comment

                  • Original Poster

                    #10
                    I called them, they don't service our state and I've already talked to Mid-Atlantic which is our local extension and they wouldn't do a loan on this particular property.

                    Comment


                    • #11
                      I'm confused as to how they can classify it as a commercial property just because it has that potential? Is it being sold as a residential lot (house/land)? Is the house worth more than the land?

                      We ran into an issue with purchasing a farm where the land was worth more than the house.... but for the property we ended up buying, no one denied us the loan for our current farm because it had the potential to be commercial. In fact, I don't even remember them asking us if we were going to use it to make money (we aren't). Before we purchased it, it was already fenced with three-board, had a barn, and had horses boarded on it.
                      "No hour of life is wasted that is spent in the saddle" - Winston Churchill

                      Check out Central Virginia Horse Rescue

                      Comment


                      • #12
                        We are running in to the same problem. Very difficult to get a good appraisal, they want to value our 400K barn at 50K. Thank goodness we are just under 10 acres as no banks will touch anything over that. We have a business set up, but it is for liability only, we have no boarders. That has been a very difficult thing for them to get around.

                        I would not mention any of your plans to the lenders unless you need that income to qualify. Things have certainly changed...

                        BTW, the farm credit companies all had much higher rates.

                        Comment


                        • #13
                          Originally posted by ArbGrl View Post
                          simply because the property will produce income
                          "Will" produce? Are you telling banks that? If so, that is where your problem is.

                          Just tell the lender you're looking for a residential loan. Don't mention horses or boarding. Lots of people have large (multi acre) properties.

                          But your situation seems very odd. I feel like we're missing part of the story here. Banks rarely have an issue with lending for horse property. Hubs and I were shopping a few years ago for 10+ acres with barn and indoor arena and not ONCE did this question come up. We didn't volunteer it, either... just for personal use.

                          Comment

                          • Original Poster

                            #14
                            This is a property with a large barn 20 stalls and it has been used as a business in the past. We also file a schedule F as we breed and use our horses for business, they'll find this when they review our tax documents. We've made it clear that we will live on the property and only have 10 horses max, but because the barn would be classified commercial, they don't want to do the loan. I've sent several of the mortgage brokers/banks, the listing so they could see exactly what it was. Now if this same buildings were on 10 acres, we'd probably have less of an issue, but crossing the 10 acres changes a lot too. It's a mess. We'll see if anyone comes back with something good, otherwise I guess we'll have to keep looking.

                            Comment


                            • #15
                              Any chance of owner financing?
                              "No hour of life is wasted that is spent in the saddle" - Winston Churchill

                              Check out Central Virginia Horse Rescue

                              Comment

                              • Original Poster

                                #16
                                Found some better leads today, I've resolved the fact if its meant to be it will work out other wise there are other options, this is just the most covienent at the moment.

                                Comment


                                • #17
                                  Don't understand why Farm Credit won't finance.....something else is going on.

                                  I have gotten mortgage approval from Farm Credit for both 95 acres of raw land and a 22 acre commercial ag operation.
                                  Do not confuse motion and progress. A rocking horse keeps moving but does not make any progress.
                                  Alfred A. Montapert

                                  Comment

                                  • Original Poster

                                    #18
                                    Originally posted by pluvinel View Post
                                    Don't understand why Farm Credit won't finance.....something else is going on.

                                    I have gotten mortgage approval from Farm Credit for both 95 acres of raw land and a 22 acre commercial ag operation.
                                    Because you are a large operation, land is easy to finance and a 20+ actual operating farm with something other than horses they would do, but no dice on a small boarding facility. I've talked to several different people in several different offices and when I describe the property, they say they won't do it. This long before even talking about my income, credit, down payment, etc. Maybe it's just the logistics of this property, but no one seems to have any interest in a horse farm w/out talking commercial. Lending regulations have changed drastically in recent years.

                                    Comment


                                    • #19
                                      Originally posted by ArbGrl View Post
                                      Because you are a large operation, land is easy to finance and a 20+ actual operating farm with something other than horses they would do, but no dice on a small boarding facility. I've talked to several different people in several different offices and when I describe the property, they say they won't do it. This long before even talking about my income, credit, down payment, etc. Maybe it's just the logistics of this property, but no one seems to have any interest in a horse farm w/out talking commercial. Lending regulations have changed drastically in recent years.
                                      Think as a business person....your lenders will. If you're having this kind of trouble securing financing, think of the time when you need to sell.

                                      It may be impossible to sell this property in the future because others will also have the same difficulty acquiring financing. You may be stuck with a property that you can't get out of. That's not a good thing if you end up with health or financial troubles that require a change of location of life style.

                                      Perhaps this is a sign from the karmic universe that it is not a good deal to buy this property and time to walk away to look elsewhere.
                                      Do not confuse motion and progress. A rocking horse keeps moving but does not make any progress.
                                      Alfred A. Montapert

                                      Comment


                                      • #20
                                        We were in a similar situation back in 2005 when we bought our place with 27 stalls in two different barns. To make it harder, the house on the property is a duplex. Everyone wanted to make our loan commercial and we could not afford it. We should have not done this in retrospect but we had no idea of what was to come and it had always been my dream to own a horse business. We did start one up that was successful through 2008.

                                        We approached a local bank, Old Point National Bank and they wrote a mortgage for us that gave us conventional rates but with a few stipulations. We have to pay every two weeks which has us on a fast track to pay it off in less than 30 years. The other stipulation is that we have no escrow...so we have to have the discipline to save for taxes and insurance. It has made it more expensive than a normal mortgage obviously but it was doable for us.

                                        I worry also about selling this farm when the time comes. We have found, like many, that making a living off horses is impossible in this economy. We turned the farm into a multispecies operation and sell meat and eggs at farmer's markets. We are also remodeling the house right now to have a door between the two sides so we can market it as a "multi family" home...either a rental or for kids/parents who live with the owners....which has become the "new normal" in this wretched economy.

                                        I figure worst case if we can't sell it, we'll rent it and try to cover the mortgage...with duplex house, a barn appt, 20 stall main barn and 26 acres...hopefully when the time comes there will be someone left who will want it.

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