The Seller Assisted farm ownership program is a cooperative financing effort involving a buyer, a seller, a local lender, and the Minnesota Rural Finance Authority (RFA).
Under this program, each seller actively participates in financing the sale of their farm by providing a portion of the financing. (The seller agrees to subordinate their financing to the lender/RFA). The lender and the RFA provide the balance of the funds with a first mortgage. The RFA portion of the total financing is provided at an affordable interest rate which helps the buyer by reducing the total interest expense of the entire financing. In addition to the affordable rate financing, the program has built in safeguards such as farm management training and financial planning.
While all lending institutions are eligible to be part of the program, they are not required to do so. Their decision to join the RFA program is voluntary. Once they agree to join, they enter into an agreement with the RFA and offer beginning farmers loans based upon certain pre-established rules in order to qualify for RFA participation. Lender's interest rates and other specific terms will vary from lender to lender depending upon the conditions of its agreement with the RFA. The RFA suggests that buyers contact more than one lender to determine the best available terms.
To be eligible for assistance under the Seller Assisted Program, all applicants must:
- Be an individual who is a resident of Minnesota, a domestic family farm corporation, or a family farm partnership.
- Certify that they will be the principal operator of the farm, that they will make farming their principal future occupation, and the farm will be used for agricultural purposes only.
- Not be a current or previous participant in the Minnesota Family Farm Security program.
- Have sufficient education, training or experience to succeed in the type of farming to be undertaken.
- Have a financial need and the ability to repay their loans.
- Agree to enroll and continue in an approved farm business management program for the first three years of the loan, if an approved program is available within 45 miles of the borrower's residence.
- Agree to consult with a local Board of Water and Soil Resources office or the county Natural Resources Conservation Service.
- Agree to obtain credit life insurance for the amount of the debt incurred to purchase the property.
In addition to the above, beginning farmer applicants must:
- Have a total net worth of less than $979,000 in 2023 (indexed annually for inflation; please call the RFA for current limitation).
This program is designed to permit the sellers of a farm to fund a portion of the financing essential to the completion of the sale. To qualify as an eligible seller under this program, the seller must:
- Be a person, a partnership, or a family farm corporation selling a farm located within the state of Minnesota.
- Not be a current or previous seller or participant in the Minnesota Family Farm Security program.
- Complete a seller assisted loan commitment form certifying that they will partially finance the purchase of the farm property by making a loan to the buyer.
- Make a loan to the buyer in an amount necessary to complete the transaction.
A down payment is negotiable. The program rules do not, however, require one to be made. There is also no maximum on the size of the loan that the lender may make under the program. Each lender shall determine their own requirements based on the buyer's ability to repay the required financing. The RFA participation in a qualifying loan is limited to 45 percent of the lender's loan up to a maximum of $400,000.
Loan amortization of the lender/RFA loan will be scheduled on a flexible term of 15, 20, 25 or 30 years negotiated between the lender, applicant, and the RFA. However, loans will balloon and require full payment at the end of 10 years, at which time the RFA participation will end. The borrower will either repay the loan with cash or refinance. Loans carry a prepayment penalty equal to 10% of the outstanding balance in the first 5 years. The penalty is decreased by 2% annually.
|Sale price:||$ 160,000|
|10% down payment||16,000|
|Seller's 20% (example)||28,800|
While in effect there are three loans, the borrower would only make two payments - one payment to the lender and a second payment to the seller.
The interest rate and certain conditions of the seller's loan are negotiated between the seller and the buyer.
The RFA will charge a reduced interest rate (call for a quote) on its portion of each loan. Each buyer should confirm the RFA's current rate when making application with the lender. The RFA interest rate is basically fixed for 10 years. However, the RFA rate may be increased at any time for failure to remain in compliance with the rules or statues that govern the program.
The RFA program allows participating lenders to charge either fixed or adjustable interest rates consistent with their normal farm real estate lending practices and their agreement with the RFA. Therefore the actual interest rate paid by a beginning farmer will be a blended rate of all three portions of the loan.
A borrower may use the program more than one time to an aggregate amount of $400,000. For example, a borrower could have two loans - one for $225,000 and one for $175,000, or eight loans of $50,000 from the RFA.
A borrower would have to make a new application for each loan. Approval would be determined by the current guidelines in effect at the time of the application.