Farm Service Agency offers new program: Land Contract (LC) Guarantee Program

by Devon Van Noble

We are pleased to share news of the launch of a new financing program through the USDA Farm Service Agency (FSA), called the Land Contract Guarantee Program. As of January, the FSA will be offering loan guarantees to eligible farmers to buy and operate family sized farms. The focus of the program is to reduce the financial risk to sellers, who wish to sell agricultural property to a beginning farmer or a farmer who is a member of a “socially-disadvantaged group”. Groundswell has been working hard to develop new farmer training opportunities, but without financing options that are compatible with the scale of farming they are interested in, these new farmers wouldn’t be able to continue growing in our area.

In some places in the country, the purchase of farmland through land contracts is a key mechanism for land succession, and we see this Program as a wonderful opportunity for both, landowners and new farmers in Tompkins County and Central New York. If you are beginning to plan for the transition of your estate, or selling property, we hope you will take the time to understand how this financing option works. You can find more information at www.fsa.usda.gov.

What does this mean for beginning producers and landowners?

Typically, there is a financial risk to the seller that buyers might default on the contract payments, but to incentivize sales, FSA is offering a guarantee on up to 90 percent of the outstanding principal. In the case of default, the FSA would compensate the seller for the unpaid portion of the balance. The idea is that if land contract arrangements are less risky for landowners, and more accessible to new farmers, land will more often be transferred to the next generation of food producers, which helps ensure the long-term viability of regional food systems.

How it works

The program is designed to support sales of agricultural real estate to beginning or “socially-disadvantaged” farmers through land contracts. A land contract is an installment contract between a buyer and a seller for the sale of real property, in which complete ownership of the property is not transferred until all payments under the contract have been made. Buyers must make a down payment of at least 5% of the purchase price, and be able to project the ability to make land contract payments through a business plan. The monthly payments must be amortized over a 20 year period, so that the buyer is making fixed payments for the length of the contract. However the FSA will only be making guarantees available for 10 years, which means that after 10 years of payments, the risk of buyer-default returns to the seller.

Buyer eligibility

The FSA is focused on making these guarantees available to beginning farmers, or those who identify as “socially-disadvantaged.” However, there are several eligibility requirements that the buyer must meet, including: having U.S. citizenship or being a qualified alien, having the legal capacity to incur the obligation of the loan, and being unable to obtain credit elsewhere, yet also having acceptable credit history. The Buyer must not have had a previous loan which resulted in a loss to the FSA, nor be delinquent on any Federal debt, and lastly he or she must be the owner/operator of the farm upon completion of the contract. If you are considering purchasing land, and want to explore the Land Contract Guarantee Program, feel free to contact your local FSA office for an application. They can meet with potential buyers to help to fill out the application if necessary, as well as determine one’s eligibility for the program.

Read more about this program from the FSA

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