Mortgage Options for Equestrian Properties

Equestrian properties—and the challenges of owning one—can be large or small. You may have your heart set on a cozy home and paddock that simply offers your family the pleasure of riding horses on nearby wooded trails. Or you might want to invest in a vast boarding, training, or breeding facility. For many horse enthusiasts, that would be an ideal way to earn a living. Horse owners are a different breed! Either way—or some way in between—financing your dream involves doing some soul-searching, gathering a lot of facts, and weighing a wide range of borrowing options.

Depending on where your property is located, its size, whether you intend to live there, your income, and other factors, your equestrian estate mortgage opportunities will vary. What’s the best kind of mortgage for you? From finding a mortgage lender to considering how large a down payment to make on your property to ways to make your monthly payments manageable, we’re here to help you sort out your choices and give life to your dream of becoming a horse farm owner.

Question One: Will You Live on Your Horse Farm?

If your horse farm is your primary residence, the types of financing available to you run a wide gamut. If you have an excellent credit history and can put down a substantial down payment on your equestrian property, you may want to start by researching private loans. If you can’t make a down payment of at least 20% but meet certain eligibility requirements, one of several government-backed loan programs may be a better choice.

Question Two: How Much Do You Intend to Spend on Your Horse Farm?

Equestrian properties come with a lot of acreage. They invariably include barns and other outbuildings. Not surprisingly, horse farm ownership can be pretty expensive. If you plan to buy and live on a horse property in the million-dollar or higher range, one loan option you could consider is the jumbo residential mortgage. Jumbo mortgages offer higher loan limits than conventional mortgages, though they usually come with stricter eligibility requirements and may also demand that borrowers make a higher down payment than they would need to if they were borrowing less money.

Many would-be equestrian property owners also seek help from the Farm Credit Administration. The FCA doesn’t make farm loans itself. Rather, it’s a federal agency that regulates lenders who support agricultural and rural America—members of a cooperative known as the Farm Credit System. The FCA can put you in touch with an FCS lender that services your location.

Other government financing options are also worth considering. The US Department of Agriculture oversees another agency—the Farm Service Agency (FSA)—that can help you finance the purchase of a horse farm. The agency also offers operating loans that horse farm owners and ranchers can use to purchase livestock and make property improvements. Like jumbo loans, both FCS loans and FSA loans come with higher loan limits than conventional mortgages. The most you can borrow under 2022 regulations is $1,825,000.

Question Three: How’s Your Credit Score?

Mortgage lenders take several factors into account before deciding whether to loan you money and at what interest rate, but chief among them is your credit score. They reserve low-interest loans for the most creditworthy borrowers. Before you submit a loan application to any financial institution, download a free copy of your credit report from each of the three major credit bureaus: Equifax, Transunion, and Transunion. Don’t like what you see? You may be wise to hold off on applying for a mortgage until you can raise your score. Even a quarter-point decrease in the interest rates you’re offered can mean thousands of dollars in savings over the lifetime of you your loan.

Repairing your credit can be a time-consuming process. Mistakes on your credit report, such as misrecorded late payments and closed accounts that show as active may be dragging your credit score down. Getting those negative remarks removed from your report can be challenging—it takes a lot of letter-writing and follow-up—and may take you months to accomplish. But there are some quicker ways you can inch your score upward. Start by bringing all of your credit accounts up to date. Pay down any high-interest credit card balances you may have to the best of your ability. And take a vow to make all of your credit payments on time, every time. You’re likely to see a significant bump in your credit score pretty quickly if you do.

Question Four: Do You Qualify for a US Department of Agriculture (USDA) Loan?

The USDA loan program was conceived as a way of encouraging the development of rural areas in the United States. But the USDA government defines “rural” very liberally. You might be surprised to learn that 97% of locations in the US may meet the eligibility requirements for a USDA loan. Some of these locations are adjacent to major real estate markets. If your equestrian property is situated in a town with 20,000 or fewer residents and you intend to make it your primary residence, you may meet the first eligibility requirement for a USDA loan.

USDA loans are designed for middle-income property owners, so if you have a high net worth, the loan program may not suit you. Because they are designed to encourage homeownership for people of modest means, you can even take out a loan with no down payment. USDA loans often come with lower interest rates than traditional mortgages. And you may be eligible for a USDA loan even if your credit score is less than ideal.

USDA loans are available through multiple lenders. You can take out a USDA loan directly from the federal government or through private lenders and credit unions. Direct USDA loans come with more restrictions than loans through banks and other financial institutions. With a USDA Direct loan, the purchase price of your property is a consideration. Depending on your property’s location, you may be limited to horse farms with purchase prices under $336,500. But that’s just the average limit in the US for 2022. In some zip codes, you may be able to borrow more than $970,000. That can buy you quite a bit of horse farm! Non-direct USDA loans may even have fewer restrictions. Note that USDA loans are not available for income-producing properties. The horse farm you purchase with a USDA loan must be for your personal use exclusively.

Question Five: Will Your Equestrian Property Generate Income?

If you’re planning to put your horse farm to commercial use—and you’re confident that it will be profitable—you could consider a commercial mortgage for your property. Some financial institutions offer both residential and commercial loans. A loan officer worth his or her salt can help you weigh the benefits of taking out both types of loans. To apply for a commercial loan, you will probably need to submit a wider range of documents than you’d have to under a residential mortgage. In addition to bank records and income statements, you may be required to submit a business plan that includes an accurate assessment of your property’s income potential. Commercial loans may come with higher interest rates because they’re written for shorter terms than residential loans: usually between 5 and 20 years. But if you can afford to make higher payments for a shorter amount of time, you could save money in the long run with a commercial loan.

Top Tips for Financing Your Equestrian Property

Buying a horse farm is a compelling dream. But it’s also a big decision. Be sure you’re not going in with your blinders on! Here are a few key tips to keep in mind as you begin working towards fulfilling your dream:

• Make a list of your goals. Make sure to include both your personal and financial goals. Understanding what you want to achieve can make choosing a property and considering multiple loan offers
• Polish your credit profile to the best of your ability. Having a poor credit score will make financing your farm more expensive or, sadly even impossible.
• Consider a full complement of financing options. Consult with multiple lenders, from your local credit union to the bank where you have your checking account to some of the financial technology companies that have begun to dominate the mortgage industry.
• Investigate government-backed loans, especially those designed especially for agricultural properties.
• Do your best to calculate the full cost of horse farm ownership. Estimate your monthly payments under several down payment and interest scenarios first. But be sure to add in costs for taxes, property insurance, and farm maintenance. These costs may be higher if you’re operating a business.

All that may sound like a tall order. The good news is you don’t have to do it alone. If you work with a realtor who specializes in equestrian properties, you’ll benefit from his or her experience in horse farm financing and management. You’ll get an education—something every potential horse farmer needs—and support throughout the process of finding and buying a property you love.

Author Bio:

Susan Doktor is a journalist who specializes in writing about personal finance topics, including real estate, the mortgage market, and investing. Her contribution comes to us courtesy of Money.com.