Finding, Financing and Purchasing a Farm

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PHOTO: FOTOLIA/LAURIN RINDER
Although locating a suitable homestead and obtaining reasonable purchase arrangements may seem difficult, it definitely is possible for almost anyone with a little cash and a steady income.

Although locating a suitable homestead and obtaining
reasonable purchase arrangements may seem difficult, it
definitely is possible for almost anyone with a little cash
and a steady income to buy a farm today. If you can scrape
up enough bread for a down payment, this article should
help you find a farm you can afford and arrange a mortgage
that you can handle.

Practically all available farmland and land suitable for
farming in this country is privately owned. Little
government homestead land left in the continental United
States is suitable for farming. The few small tracts of
public land available from time to time are mostly located
in the semi-arid western states and it requires an immense
effort and considerable resources to make such acreage pay.
The absence of farm buildings, a house, available water,
tillable soil and utilities raises many questions about the
practicality of such a venture. It’s better to consider
buying an inexpensive existing farm in a remote area before
exploring the purchase of public land.

But, if you’re dead-set on homesteading, buying or leasing
government land–or if you’ve located a tract suitable
for farming–write to the Bureau of Land
Management, Department of the Interior, Washington, D. C.
20240.
The lease or purchase of public land is
authorized by the Public Sale Act of 1964; Public Law
88-608; 78 STAT 988. Homesteads are granted following a
personal inspection of the land provided that the tract has
been classified as suitable for farming by the Bureau of
Land Management. Remember, though, you’ll need cash to
build a shelter and develop even the free land.

New land suitable for farming may be developed by improved
drainage, irrigation or reclamation projects conducted by
the Bureau of Reclamation, U.S. Department of the
Interior.
Such land is often sold immediately (Usually
to large “development” corporations that have an inside
pipeline to the most desirable chunks of property if the
large holdings recently opened in coastal North Carolina,
Louisiana and other states are any indication–JS).
When private land affected by reclamation projects is
offered for sale, the project manager should be consulted
to determine whether or not such land will actually benefit
by the project.

There is much land suitable for homesteads in Alaska but,
until the federal government settles all existing claims
against it by the natives of that state (this settlement is
to be made early in 1971), new homestead grants are being
withheld. Further information about public land in Alaska
may be obtained from the Bureau of Land Management,
Department of the Interior, Washington, D. C. 20240;
Manager, Land Office, Anchorage, Alaska 99501; or Manager,
Land Office, Fairbanks, Alaska 99701.

The vast majority of farms and farm tracts purchased in the
United States are bought from private owners and are
usually financed by mortgages. The acreage is usually
located through advertisements in small area newspapers,
major Sunday papers, shopping guides, farm journals and
farm real estate listings.

Again, in case you’re interested, there is private land in
Alaska available for sale or lease. To obtain information
about climate, farming conditions and markets for produce
in the areas that interest you, write to Director,
Alaska Agricultural Experiment Station, Palmer, Alaska
99645.

When you’ve selected the part of the country where you’d
like to settle, you’re ready to begin the search for that
“perfect” farm. It’s not really necessary to limit your
choice to an economically depressed or underdeveloped area,
either. Although prices are generally much lower in some
sections of the country (such as the Ozarks) than others,
you can still find a good farm at a reasonable figure
almost anywhere. Land values are skyrocketing around
Cleveland, for instance, yet–a few weeks ago–I
saw a good 31 acre farm for $11,000 . . . and it was within
an hour’s drive of that city’s downtown area. Bargains such
as this can be found if you consider a few important points
when looking for a farm.

The first fact to consider is that the farther you are from
a major city or suburban development, the less costly land
should be. Acreage near freeway interchanges, expressways
and important highways is generally more expensive than
less accessible land. There is little point in paying for
valuable frontage property if you intend to use it for
growing vegetables. If you want your homestead to remain a
homestead, try to locate it in the least likely path of
future suburban sprawl . . . probably at the maximum
economical distance from your job, business or market area.

Second, if you’re trying to hold the cost of your land down
to a bargain level, you should not buy any more land than
you can reasonably or economically use. A small family or
part-time farm need be no larger than fifty acres. Even this
is stretching it for practical purposes. A one-acre garden,
well planned, can produce enough food for two families. One
cow will give from 10 to 20 quarts of milk per day.
Thousands of families have established abundant homesteads
on five acres or less. There is little point in passing up
a nice little farm just to obtain a lot of acreage. A
little thirty-acre homestead–too small to farm
profitably in a “traditional” manner–can supply your
basic needs and keep the suburbs from your back door. A
small outside income or–possibly–ten acres of
organically grown produce for the increasing market will
bring home the “extras” that you might desire.

Third, avoid paying for prime farmland in locations known
as “fruit belts”. Unless you intend to specialize in
certain fruit crops there is little reason to purchase land
in such regions. Available orchards and vineyards in my
area (40 miles east of Cleveland) are priced absurdly high
regardless of their condition or age. Even the nearby farms
that have no orchards or grapes are unreasonably expensive
due to local conditions that are favorable for growing
those fruits. A new interstate highway through our area
directly into Cleveland has also boosted land costs.

Fourth, you will soon discover that “wild land”, overgrown
with weeds and unused for years, can be much richer and,
probably, less expensive than land which is currently in
production. Even when crops are properly rotated, they must
be hyped with chemical fertilizers to meet today’s demands
for record yields. As far as the land is concerned, this
pushing does little more than further deplete the soil.
Corn crops especially rob the earth of many precious
nutrients which are not readily restored. Wild land which
has not been drained by cash crops and which–to-boot–is
probably less expensive can, therefore, can be a double
bargain. It may well contain more nutrients than
“developed” soil and subsequent plantings by proper organic
methods can maintain and even increase this natural wealth.

Don’t pass up rolling countryside or hillside acreage.
Those Appalachian farmsteads are not only beautifully
scenic and remote . . . the land is generally excellent for
gardening. Most of this soil has been avoided by commercial
and large farming operations, is quite rich and–as long as
there is any heavy wild annual growth to prevent
erosion–you can garden in strips across the slope. Hillside
farms have other advantages: They often sell for as little
as $20 an acre; excess water never gets a chance to stand
around long enough to rot crops; frost problems are less
serious because currents flowing down the slopes on cold
nights prevent the development of pockets of stable cold
air. Besides, who ever found a hillside to be an obstacle
for goats?

Finally, the cost of labor and materials being what it is
today (not even considering inferior workmanship), one is
well advised to purchase a farm with existing buildings . .
. even if some repairs are needed. If you take the time to
look, you’re almost sure to find a tract of reasonably
priced land with a house and some decent buildings thrown
in “for free”.

Once you’ve located your homestead, there are a number of
ways to arrange financing. If you know what they are, you
can save yourself a sizeable sum on interest rates, your
payments can be substantially less and you can avoid the
usual finder’s fee by arranging your own mortgage. Here’s
what is generally available:

Life Insurance Companies have broad investment powers and
are often the best bet for financing an off-beat real
estate transaction. Some of the smaller concerns deal
almost exclusively with residential mortgages and the
little private and fraternal insurance companies can lend
at an extremely low interest rate. American Mutual Life
Association of Cleveland, for instance, now makes loans at
6% to its members which isn’t bad in today’s market of 8
1/2%. These small companies seldom require the payment of
discounts or “points”.

Savings and Loan Associations are the major source of
mortgage funds for residential purchases. The usual loan
limits are $40,000 with a maximum loan-to-value ratio of
90% and an average of 70%. However, since farmland is often
bought at less than its appraised value on today’s market
and since it is possible to obtain maximum loans on
exceptionally good purchases, you might finance your
acreage with virtually no out-of-pocket cash through a S
& L.

I bought a suburban home through a Savings and Loan bank.
It was willing to finance the entire selling price so that
I only had to pay the closing costs . . . which were less
than the security deposit I would have had to make on an
apartment. The market value of my home has now increased
enough to finance the down payment for a farm when I sell.

The new Federal Home Loan Mortgage Corporation has been set
up to purchase both conventional and government mortgages
with greater flexibility than in the past and to increase
the supply of money available for home mortgages.
Conventional financing has been encouraged to provide for
lower down payments, longer payoff periods and lower
monthly payments–particularly for low and
middle-income families. Authoritative sources indicate that
new laws enacted by congress should provide for even more
federally subsidized housing at lower interest rates during
the next few years.

The Farmers Home Administration Farm Ownership Program
currently makes 40 year loans at 5% interest for the
purchase, enlargement or development of farms no larger
than family farms for persons unable to obtain required
credit elsewhere. Maximum loan plus debts against the farm
cannot exceed $60,000. To qualify, you must be certified by
the local County Farmers Home Administration as qualified
to farm. “Qualified” usually means that you have had farm
experience. Veterans are given preferential treatment. Once
you have enough equity in your farm through full-time
operation, you are expected to refinance through a
conventional mortgage.

The Farmers Home Administration also makes loans for the
purchase of small farms if the applicant is considered
eligible and has dependable off-farm income. The applicant
must plan to continue farming part-time. If rural housing
is desired, any individual who is unable to obtain
sufficient credit elsewhere may qualify for a mortgage
loan. For further specific information, contact the local
Farmers Home Administration office in your county seat town
or write to the Farmers Home Administration, Department
of Agriculture, Washington, D. C 20250.

Federal Land Banks make long-term farm
mortgages through 700 local Federal Land Banks and their
associates (This is how the family farm back in Indiana was
financed–JS). The Land Banks and associations are
owned cooperatively by their member borrowers. Funds are
obtained from the investing public through the sale of
Federal farm loan bonds. First mortgage loans are arranged
for persons who are–or will be–engaged in
farming and who will derive a principal part of their
income from farming. For more details, contact the Farm
Credit Administration, Washington, D.C. 20578
or a
local Federal Land Bank or association.

Individual Lenders who are willing to make greater risk
loans than a lending institution will handle are to be
found in almost any community. These individuals usually
prefer short term loans and charge a higher rate of
interest. They may be a last alternative for a
hard-to-finance deal.

Purchase Money Mortgages are another alternative to usual
financing sometimes used by real estate dealers during
periods of tight money. A seller to (1) get his price and
(2) save a considerable amount in taxes [as long as he
receives no more than 30% of the sale price during the year
of the sale] will sometimes “carry the paper” when
sufficient loan money is not otherwise available.

A Second Mortgage can often be arranged on the difference
between the loan value on a property and the actual asking
price. If the seller has sufficient credit to arrange a
ventional mortgage he can finance the balance through a
second mortgage on the same terms as the first mortgage
(and he may ask for a percentage from the buyer for
arranging the deal). The buyer may have the right to prepay
on the second mortgage and the seller can sell the second
mortgage to a third party at a discount. By “inflating” the
sale price, the seller can make up any loss he might
realize on a discount.

Land Contracts should be considered when there is little
money for a down payment but funds may be available in the
future for larger payments. Through a standard land
contract agreement one can arrange an installment purchase.
The seller may obtain the balance of the sale price over
the existing mortgage by pledging his own credit for a loan
with the land contract as security. The buyer assumes the
existing mortgage payment plus payments due under the
seller’s loan. The seller retains title and is covered in
case of default by the buyer. Seller may also stipulate
that all installment payments may be liquidated if the
buyer defaults. In this manner, land contracts are
encouraged without the risk of complicated foreclosure
proceedings following default. The FHA does not insure
installment sales but will continue to insure any existing
FHA mortgage even though an installment purchase has been
made. Once the buyer is able to refinance the total debt
with an outside mortgage, he obtains title from the seller.

A Trade-in or a swap may be arranged if you already have
property. Such arrangements are common and can be
beneficial to all parties, especially during periods of
tight money. On occasion, you may find a farm widow or
widower who wants to move to the suburbs or the city. Any
difference in costs can be managed by a second mortgage
payment.

Alternatives to individual ownership ought to be considered
if resources and credit are limited. Several individuals
may join together to purchase land that they couldn’t
obtain otherwise. Several joint arrangements may be
considered:

Joint Tenancy: Two or more individuals have the same
ownership interest in a single parcel. In a joint tenancy
agreement each owns all, with the right of survivorship.
This arrangement seems best for tribes or communes,
especially when one individual pays more than his share in
costs, in which case he may take a full deduction on taxes.

Tenancy in Common: Two or more individuals each with the
same right to possession and benefits according to his
share of ownership. There are no rights of survivorship. A
tax liability arises when one tenant pays more than his
share of costs.

Although Partnerships are the most common form of
unincorporated arrangement and offer certain business
advantages, they are least desirable as an alternative to
purchasing a hip farmstead. Various tax factors and other
considerations affect the partnership to create a good
possibility for future hassles between partners. The
Treasury Department carefully scrutinizes partnerships to
insure that they are not set up as corporations.

An interesting federal program that appears to offer
promise for any joint ownership consideration is in the
National Housing Act’s Public Law 73-479, Section 213. This
provides for technical advice and assistance from the
Federal Housing Administration in planning, organizing,
developing, constructing and operating cooperative housing
for five or more dwelling units. This program may be used
to finance a communal venture and may provide an excellent
way to finance building on inexpensive land when little
cash is available. Loans are available for up to 97% of the
estimated value of property for continued use as a
cooperative. According to one source, mortgage limits are
$9,000 per family unit without a bedroom; $12,500 per
family unit with one bedroom; $15,000 per family unit with
two bedrooms; $18,500 per family unit with three bedrooms
and $21,000 per family unit with four or more bedrooms.
Maximum mortgage maturity is 40 years.

To qualify for the National Housing Act program, one must
form a nonprofit cooperative ownership housing corporation
or a nonprofit cooperative ownership housing trust.
Permanent occupancy of the dwellings is restricted to the
members or beneficiaries of the corporation or trust. The
mortgage must cover the properties of the corporation or
trust.

For further information, specific details and/or advice,
contact the Federal Housing Administration, Department
of Housing and Urban Development, Washington, D. C.
20411
or any of its regional offices (New York,
Philadelphia, Atlanta, Chicago, Ft. Worth, San Francisco
and San Juan, Puerto Rico).

Section 233 of the same law authorizes the FHA to insure
mortgages on properties where advanced technical housing
design, materials and construction or experimental
neighborhood design produce a significant reduction in
costs or improve quality. Although the FHA has
traditionally fostered conventional construction methods
(often inferior in quality and workmanship) the terminology
in this law may provide the basis for a pilot project you
might develop on your own land. It is certainly worth
exploring.

Under FHA’s Section 203 (i) program of mortgage insurance
for homes in outlying areas, a home buyer must make a down
payment of 3%. On the old maximum ceiling of $13,500, the
down payment on such a loan would be only $405.

Several additional Federal Assistance Programs are worth
considering before rushing out to sign that mortgage
contract. For a complete catalog of Federal Assistance
programs write to the Office of Economic Opportunity,
Washington, D. C. 20506.

Whatever you decide about mortgaging the purchase of your
farm, it’s a good idea to check back with MOTHER EARTH NO. 2, the special issue on finding and establishing a homestead, for
some final tips before the deal is closed.

GOOD LUCK!