Access to affordable farmland is one of the most significant challenges that new and aspiring farmers face when looking to start a career in agriculture. Whether trying to find land in California’s Central Valley or New York’s Hudson Valley, land access can often be a make or break issue for anyone with hopes of starting their own farm. The Down Payment Loan Program reflects the dual realities of scarce federal resources and the significant cash flow requirements of most new farm operations. It combines the resources of USDA’s Farm Service Agency, a beginning or socially disadvantaged farmer, and a commercial lender or private seller to enable beginning, minority, and women farmers to purchase a farm or ranch.
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The Farm Service Agency (FSA) has a special joint-financing or participation loan program that creates a partnership between a private and public lender in order to help beginning farmers and ranchers and socially disadvantaged applicants buy a farm or ranch. To qualify, an applicant must make a cash down payment equal to 5 percent of the purchase price of the land to be acquired and must be able to secure a commercial loan for at least 50 percent of the purchase price.
FSA can provide up to a 95 percent guarantee on the private loan and the participating lender does not have to pay a guarantee loan fee. FSA can also provide two types of federal guarantees to private landowners who sell to the beginning or socially disadvantaged farmer using a private land contract (see Land Contract Sales Guarantee section of this guide).
With the 5 percent down payment and the private loan for 50 percent of the land value, the maximum loan amount financed by FSA is therefore equal to 45 percent of the purchase price of the land to be acquired, not to exceed its appraised value and not to exceed $667,000. With this cap, the maximum loan amount financed by FSA is thus $300,000 – the same amount for other FSA farm ownership loan programs. However, note that this is the cap on the amount of the loan, not a cap on the value of the land to be acquired, which can be higher.
The interest rate on the FSA portion of the loan is a fixed rate that is 4 percent below the direct farm ownership rate but not lower than 1.5 percent. Hence, if the regular (and already subsidized) FSA direct farm ownership interest rate is 7 percent, the Down Payment loan interest rate will be 3 percent. Or, for instance, if the regular rate is 5 percent, the down payment rate will be 1.5 percent. Find current interest rates on the FSA website.
State “first time farmer” or “aggie bond” programs can also provide assistance that has the effect of lowering the interest rate on the commercial portion of a down payment loan or a participation loan. Click here for an explanation of the “aggie bond” option and a listing of 16 states that have state programs.
The repayment period for the FSA portion of the loan is scheduled in equal, annual installments for a term not to exceed 20 years.
To be eligible for this loan, a farmer must be considered either a qualified beginning farmer or rancher or socially disadvantaged applicant. A beginning farmer is considered an individual or entity that has not operated a farm or ranch for more than 10 years, substantially participates in the operation of the farm, and does not own a farm bigger than 30 percent of the average acreage of the farms in the county. Socially disadvantaged applicants include American Indians, Alaskan Natives, Asian Americans, African Americans, Native Hawaiians or other Pacific Islanders, Hispanics, and women.
Additionally, all applicants must have at least 3 years of farm management experience, or other comparable experience. If the applicant is a business entity, all members must be related by blood or marriage, and all must be beginning farmers, or socially disadvantaged individuals must hold a majority interest. All entity members must substantially participate in the operation of the farm or ranch.
Since 1994, this federal loan program has helped over 8,000 new and socially disadvantaged farmers purchase farms in almost every state across the country. These loans have provided over $884 million in federal funding that has helped farmers of all kinds purchase their first farms. Given that FSA provides a maximum of 45 percent of the total purchase price of the farmland to be acquired, with private lenders providing additional financing, farmers have received more than double this amount through the overall program!
Down payment loans have helped countless farmers gain access to the farmland needed to start their careers, including the following examples:
To read a more in-depth analysis of how this program has increased access to credit in different regions, see our analysis of DPLP on its 20th anniversary.
For information and applications, go to your FSA regional Service Centers or to your state FSA office. You can locate all of the contact information by clicking on your state on the FSA Service Center Locator.
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This innovative loan program was first established by the 1992 Agricultural Credit Act and implemented by USDA starting in 1994. The program has gone through several changes over its 20-year history, including significant changes in the most recent farm bills.
The 2008 Farm Bill reduced the interest rate (which previously was 4 percent, regardless of what the regular rate was) and down payment requirements (which previously was 10 percent). It also added socially disadvantaged farmers to the program that originally was solely for beginning farmers. The 2014 Farm Bill maintains the lower interest rate and down payment requirements, and also increases the value of land that can be financed by FSA from $500,000 to $667,000. The new farm bill also lowers the interest rate on all other joint-financing loans so that these loans are more attractive to both lenders and borrowers than the traditional direct farm ownership loan that is 100 percent financed by FSA.
The 2014 Farm Bill authorizes an appropriation for the Down Payment Loan program for each year between 2014 and 2018. Funding levels are then established in the annual appropriations process, with the amount of money available for Down Payment Loans equal to 50 percent of whatever Congress appropriates for direct farm ownership loans in a given year. After April 1 of each year, if there are loan funds remaining that have not been used for Down Payment Loans, they may be made available for other types farm ownership loans for beginning farmers. For additional information, or to apply for a loan, go to the local FSA office serving the area where the farming operation is located.
Down Payment Loan Historical Funding Levels
|Fiscal Year||Total Funding (in millions)|
The program has been amended in successive farm bills after that, including by Section 5005 of the Agricultural Act of 2014 which amends Section 310E(b)(1)(C) of the Consolidated Farm and Rural Development Act, to be codified at 7 U.S.C. Section 1935(b)(1)(C), to increase the loan limit on down payment loans.
Section 5003 of the Agricultural Act of 2014 amends Section 307(a)(3) of the Consolidated Farm and Rural Development Act, to be codified at a note to 7 U.S.C. Section 1927(a)(3), to modify the interest rate on joint-financing loans.
Last updated in October 2014.