Loan for land

sf1994 wrote: »

Just a quick question. Is it hard to get a farm loan say for around 150k. I am not long out of college and earn around 25k a year. I could use some of my savings 25-30k. Land might make 150k plus. I am living at home for now and could payback 10-12k a year. Would it be possible to even think of placing a bid?

I would say zero chance based on those figures.

sf1994 wrote: »

Just a quick question. Is it hard to get a farm loan say for around 150k. I am not long out of college and earn around 25k a year. I could use some of my savings 25-30k. Land might make 150k plus. I am living at home for now and could payback 10-12k a year. Would it be possible to even think of placing a bid?

150k means over 11k in stamp duty unless you qualify for relief (or obtain that within 5 years)


You'll have other fees as well such as legal. I don't know how much they'd cost. But probably large enough that you'd probably notice it if it comes out of your 30k.



What will the land make you per year if you rent it out?

Donald Trump wrote: »

150k means over 11k in stamp duty unless you qualify for relief (or obtain that within 5 years)

You'll have other fees as well such as legal. I don't know how much they'd cost. But probably large enough that you'd probably notice it if it comes out of your 30k.

What will the land make you per year if you rent it out?

You will probably need 30% deposit or additional security. So 45k for 150k land loan.

Legal fees will be your solicitor and the banks solicitor + expenses. Could be 5k, maybe more if you are putting up another asset as security instead of a cash deposit.

You'll also likely have to pay for a valuation for the bank say €100.

Stamp duty is 7.5% so 10.25k unless you're exempt. Even if you qualify at a later date it'll have to be paid up front and reclaimed. Don't think you can defer.
If you're not the sole owner you won't be able to get stamp duty exemption unless all owners qualify.

Best thing to do is call into your bank and have a chat about what would be required.

i agree with above poster, get a masters and be able to earn 10k more this will really transform your bargaining power. i am in the same boat, i will be looking for land to buy in the long term, im now in a professional secure job earning 36k potential for increases/promotion, the farm this year earned 50k profit, so getting screwed badly on tax this year. I will wait for the right plot to come up though, if all goes pear shaped can always sell off a portion if needs be. Luckily though I have a family home so wont be needing a mortgage for a house, whatare peoples thoughts? should i keep squirrelling money away and would say 100k cash be good bargaining power for 350k loan? i would imagine lots of people take out 300-350 k mortgages in more precarious jobs?

30-40 ACRES would be nice. land around me from 8-10k /acres, very rare over 10k. not massive dairy country, as i said before its an area of a lot of rented out farms, very few family farms still intact as running businesses so perhaps a chance to buy very good quality land very close to me in near enough future. Currently 4 farms totaling near 700 acres most mearning me and all set out on various letting aragaenments.

As previous posters already posted..without any current or future decent return from this land..150k loan and interest will put you under undue financial pressure and for absolutely no return...at least a house could be rented out if it were in the right location..
You could extend the term of the loan way up to 25 or 30 years but without a exact business plan it's a dead investment..
Don't make the mistake of dreaming up returns from land..even if the bank gave you the loan you would need to make hefty monthly repayments and the banks wouldn't give a crap if you couldn't make enough from the land to meet the requirements..and if you're simply dreaming about spending your wages from a day job to prop up bank repayments then you're clearly at nothing.
Good luck

duffysfarm wrote: »

Very detailed post and you raise some good points but 9% interest on a land loan?

Yeah I agree it was a bit on the high side, but the higher the risk for the bank the higher the interest. The risk from the bank here with no security, no previous financial history, no high off-farm income would all unfortunately contribute to a higher interest rate.



I also don't think many banks would give out a farm loan based on what I am assuming are the circumstances here, I was quoting more the going rate of personal loans. They are around 8%-10% over 10ish years.


Granted farm loans can be got at 3%-5%, but that would be with enterprises that have more financial backing, securities etc with them.


By all means though let the original poster talk to his bank to see what they say, and see what the process of applying for a loan may look like though.

sob1467 wrote: »

As other posters have remarked, you really have to sit down and list out a few things:

Cost Of Land
Actaul Cost: 150,000 (Minimum)
Stamp Duty 11,250 (@7.5%)
Fees for Solicitor/Valuer/Bank 5,000
Total Cost: 166,250

Bank Loan
Money Required 166,250
Deposit Available 30,000 (18%)
Loan Required 136,250

It is probably unlikely that a bank will give you a loan to that value without a higher deposit, and unless you have other security to tie up (Other farmland etc.) Any bank will also require detailed forward looking financial statements from you, and preferably historical accounts as well, to increase your likelyhood of giving you money.

But for the sake of it, say the bank do provide you a loan at say 9%:

Possible Interest Rate 9%
Loan Amount 136,250
Loan Term 15 Years
Loan Interest per year: 12,300
Loan Capital to be repaid in year 1: 9,000 (136,250/15)
This means at the end of year 1 you will have to pay the bank 21,300 (9,000+12,300)

Each year you will have to continue to pay the capital (Loan divided by 15years and the interest: Loan Amount * 9%)

Your financial situation
Gross Salary 25,000
Net Salary 22,000
Car Costs 4,000 (Assuming you've a car)
General Expenses 5,200 (€100*52 - Do not think €100 a week is excessive for food, entertainment, clothes etc etc etc)
Salary less expenses 12,800
Amount due to bank at end yr 1 Interest & Capital 21,300

I have no idea how many acres you are buying and the potential rental income it would bring in, but just looking from what you have said, unfortunately it really does not look like a viable option for you to buy the farm.

At your age, I would really not recommend going to borrow to the hilt to fund a farm that may not get you anything back. You would be way better of buying a good masters degree or some other decent training course that will help increase your salary, so then you can go out and buy land without the need for banks with a big noose around your neck.

First off do not give advice on loan repayments unless you understand the way they work. Banks never divide the capital by the no of years of the loan and add interest then. In general they fix the payments combining capital and interest into equal.payments over the number of years of the loan.

As well no mainstream bank would charge you 9% on a long term secured loan at present.5-6% would be max . On general it best to fix the rate over 5 years to give yourself security on OP's case. In general while they charge for extra risk there is a point beyond which they will not charge extra interest as the risk is outside loan criteria.
In OP case my assumption is that they will not give him the loan as he is trying to borrow 5-6 times earning with no record of understanding farming. However if they did and if he managed to get the loan I expect on a secured loans over 15-20 years the highest interest rate would be 5-6%. I am expect that any bank would insist on a 20 year term so as that OP would have lower payments.

The rough calculation on interest on a loan is the number of years in this case say 20 divided by two which is 10. You multiple this by the loan required and fractionalize the percentage.
Assuming a 5.5% rate over 20years the calculation is as follows.

10X136000X0.055 = 74800in total interest over 20years.

Add this to capital loan 136k+74.8k=210.8k in loan and capital repayments over 20years.

Payments 10540 euro per year or about 880/month. On top of this any bank will want you to have a life insurance policy a term one over 40years for 250k will be about 20-30/month

While the above way of calculating interest is not 100% accurate it will give an indication with in 10-15 euro/ month on repayments on a loan that size. A further note is that Credit unions are starting to enter that type of loan market. In a banks are not overly interest in 150k secured loans and charge a margin for it. A credit union if you secured such a loan from it would charge 4ish% and if you were tough to bargain they might better it if you were financially secure. However OP would again be outside the criteria.

Bass Reeves wrote: »

First off do not give advice on loan repayments unless you understand the way they work. Banks never divide the capital by the no of years of the loan and add interest then. In general they fix the payments combining capital and interest into equal.payments over the number of years of the loan.

As well no mainstream bank would charge you 9% on a long term secured loan at present.5-6% would be max . On general it best to fix the rate over 5 years to give yourself security on OP's case. In general while they charge for extra risk there is a point beyond which they will not charge extra interest as the risk is outside loan criteria.
In OP case my assumption is that they will not give him the loan as he is trying to borrow 5-6 times earning with no record of understanding farming. However if they did and if he managed to get the loan I expect on a secured loans over 15-20 years the highest interest rate would be 5-6%. I am expect that any bank would insist on a 20 year term so as that OP would have lower payments.

The rough calculation on interest on a loan is the number of years in this case say 20 divided by two which is 10. You multiple this by the loan required and fractionalize the percentage.
Assuming a 5.5% rate over 20years the calculation is as follows.

10X136000X0.055 = 74800in total interest over 20years.

Add this to capital loan 136k+74.8k=210.8k in loan and capital repayments over 20years.

Payments 10540 euro per year or about 880/month. On top of this any bank will want you to have a life insurance policy a term one over 40years for 250k will be about 20-30/month

While the above way of calculating interest is not 100% accurate it will give an indication with in 10-15 euro/ month on repayments on a loan that size. A further note is that Credit unions are starting to enter that type of loan market. In a banks are not overly interest in 150k secured loans and charge a margin for it. A credit union if you secured such a loan from it would charge 4ish% and if you were tough to bargain they might better it if you were financially secure. However OP would again be outside the criteria.

First off after putting the effort in of doing up the figures for the OP, I would appreciate you not preaching about that I shouldn't be giving loan repayments advice as according to you I do not understand them...


I do understand how loans work and it was for simplification purposes that I divided the loan amount by the loan term to give him an approximate estimate of capital to be repaid in year one. Plus regarding interest multiplying the loan amount by the interest rate also approximately gives you the correct amount.


My numbers are largely correct. If you want you can put them into an online amortization calculator (https://www.amortization-calc.com/mortgage-refinance-calculator/), (Loan Amt: 136,250, Int. Rate: 9%, Term: 10y) this will give you a total of interest and capital in year 1 of 20,711 in my post I stated it would be 21,300.

Regarding interest rates, I stated that 9% is on the high side. There are a however currently a number of credit unions offering farming loans in the area of 6-8%. If the OP somehow gets the capital they are after it will be at a highish rate of interest.

I was in a similar situation a few years back. Would be a good bit older but was earning around 33k and was buying land worth 200k. Had to borrow 80k and all the major banks were only lending at 7.75% as I had no previous farm earnings that I could show them. No way were they dropping below this when I was looking for the loan on my own. If I went with my partner (public sector nurse) rate would have been 3.5% with BOI. As we had plans of getting a mortgage in the following few years I ploughed on by myself. So 9% I imagine is a possibility when it comes to interest rates.

Since managed to review the loan and bring down the rate when we played hardball over the mortgage. All the major players will pull an interest rate out of their ar5e if you have no previous earnings from the business and especially with a lower income to finance it.

Bass Reeves wrote: »

You stated on your original post that your calculations was for a 15 loan term. Read your original post. That what you did your calculations off. The error you made was in your capital part of the loan repayments.

The repayments on a 136k loan over 15 years is 15200/year or 1270/ month. You gave over 21k of repayments over 15year on year one. That 6k higher than a 9% rate would give you.

Yes CU charge 6-8% on certain farm loans. These are unsecured and are stocking, machinery or similar loans. They are.uncompeditive for unsecured not to mind secured borrowing.

I stand over my comments unless you understand the way interest is calculated it pointless giving repayment rates. There a huge difference between repayment rates depending on interest rate and term of loan as well as devoted.

The figures you have would put a person on a 50k salary off borrowings that amount even though he be well capable of the repayments.

As well OP said he felt he was as capable of repaying 10-12k a year. I would question that assumptions. However on a 15 year term at an interest rate of 3.5% the repayments would be in that ballpark

Ok one last reply to you. Not worth totally derailing this thread but that 21,300 was clearly not all capital as you're suggesting. I made it clear as day that it the 21,300 was made up of Capital (9,000) and Interest:(12,300).

Anyhow as the old saying goes "Never argue with a fool; onlookers may not be able to tell the difference."

PoorFarmer wrote: »

I was in a similar situation a few years back. Would be a good bit older but was earning around 33k and was buying land worth 200k. Had to borrow 80k and all the major banks were only lending at 7.75% as I had no previous farm earnings that I could show them. No way were they dropping below this when I was looking for the loan on my own. If I went with my partner (public sector nurse) rate would have been 3.5% with BOI. As we had plans of getting a mortgage in the following few years I ploughed on by myself. So 9% I imagine is a possibility when it comes to interest rates.

Since managed to review the loan and bring down the rate when we played hardball over the mortgage. All the major players will pull an interest rate out of their ar5e if you have no previous earnings from the business and especially with a lower income to finance it.

krissovo wrote: »

7.75% was the same rate I got and it was because I had no previous farm earnings. I am now at 5.5% after some re-negotiation after the land started making regular income.

I borrowed to buy land 18 years ago. I had no farming record. I drew up a short uncomplicated business plan. Showed it to the bank manager I drew down about 4 times income. Interest rate was 2% with bank cost of funds a commercial tracker. After12 months I moved Rabo bank and a year after than I drew down over twice more in income. Interest rate was 1.5% with cost of funds.

At that time borrowing costs were approximately 3.5-4% inc cost of funds. Highest it went to was 6% however from about 2014-2019 when first loan was paid off interest rate was 1.25%.

Second loan has 4 years left I could clear it but interest rate is so.low it virtually free money

Mooooo wrote: »

Getting money in the early noughties was a lot different to getting money post 08/09. They may have improved in recent years but they are taking the piss with margin over cost of funds tbh. Last number of years have been low interest rates but if policy makers figure out a way to get things going again and interest rates rise the margins they have of 3% wouldn't be long pushing rates up over the term of a loan

I agree however we are entering a time when borrowing is getting cheaper. 5year fixed mortgage rates are hitting 2.5%. in general small to mid sized secured farm loans(100-300k) should be within 0.5-1%if that rate. This was what was happening in the early noughties.

However farm lending is not helped by irresponsible journalism. Headline in the rag this week. Vulture fund makes million from farm loans. It about the loans that Rabo bank sold. Pepper finance is managing them for the funds that bought them.

They print that the loan book was valued at 3.2 billion, it was bought for 800 million and in the accounts for three months it collected 11 million in repayments of which 4.4 million was interest. That about 44 million a year in repayments and 13.5 million would be interest

I imagine some of the loans are historical and will never be recovered. On 800 million 13.5 million gives an interest rate of 1.6%. 30 million in capital repayments will take about 20 years for the buyers Goldman's Sachs and a crowd I never heard of Car Val. Now my loan is with them bits it repaid by 2025. The buyers will have to work hard to make a decent return on there there money unless the 3 month period was an anomaly on repayments.

However back to lending CU have only about 40-50% of money on deposit lend out. The rest they have on deposit which they are paying banks or government bonds money to mind. It would be in there interest to lend secured loans at 3-4%. I see they are starting to enter the mortgage business at present. I cannot but see lending rates drop in the short term. If I had or was looking for a secured loan I be looking at rates in the 3% bracket