One would assume all farms are in a rural setting and so farm loans are similar to rural loans. However, that’s not the case. A farm loan is an amount an applicant gets to finance their farm or ranch.
On the other hand, a rural loan is an amount granted to people living in rural and suburban areas for mortgages. Also referred to as rural development, rural loans are for anyone who can’t get a traditional mortgage. The following are five differences between an agriculture loan and a rural loan.
A credit score of between 670 and 739 is considered good. With such a score, one is likely to get any loan from most lenders. However, when the score is below 670, most lenders retreat from lending you money. But, farm loan lenders can grant a loan to an applicant with a credit score of 660. Applicants for rural loans are not subject to a credit score. Yet, you’ll find some lenders requiring an applicant to have a credit score of not less than 640.
Traditional lenders such as banks have strict procedures an applicant should follow to repay a loan. But, other lenders look at how an applicant can repay and construct a flexible payment plan that doesn’t burden a farmer. For example, you’re not given specific years in which you should have completed repaying a loan.
A rural loan has a limit term of 30 years. The repayment rate is fixed to 30 years, whereby you should complete covering the loan repayment in 30 years. Also, an applicant is not subject to pay pre-payment penalty.
A farm is usually owned by a family which means three generations could be living in the same compound. The number of people staying on a farm doesn’t contribute to a lender granting a loan or not. If the property is a minimum of 40 acres, a farmer can get a loan.
The property type for a rural loan borrower should be big for one family, be modular, and owner-occupied. This means a borrower can’t buy a home and rent it out. Instead, you have to occupy the home you purchase through a rural loan.
4.Farm Loans Borrower’s Income Vs. Rural Loan Borrower’s Income
While farm loan lenders are less strict on the qualifying factors to get a loan, a borrower must have an income that can finance personal and business debt. A farm should have produce income that can repay the loan borrowed. Rural loan borrowers should have a moderate income. Usually, an income is an amount the adults in the house earn, collectively. So, a household income shouldn’t exceed 115 percent of the median income of the area the borrower wishes to buy a home.
Getting a farm loan approval is quicker compared to rural loans. For starters, a farmer directly deals with the lender while rural loan borrowers have to wait for the U.S government to approve the loan through the U.S Department of Agriculture (USDA). Considering USDA have to repay the rural loan when the borrower default, it takes longer to get approval for the loan.
Although both the farm loans and rural loans can be granted under the USDA program, it’s easy to get a farm loan from a private firm than it is with a rural development loan. Getting either of the loans requires the borrower to achieve several factors. Call United Farm Mortgage at (913) 549-3776 for an in-depth understanding of farm loans and learn how you can get one. We are a private lending firm with flexible repayment terms.