The Agricultural and Small Business Development Authority administers a program that enables lenders to receive federally tax-exempt interest on loans made to beginning farmers. The tax savings are passed on to beginning farmers in the form of lower interest rates. A qualified borrower can borrow up to $649,400 to buy:
The maximum loan is $649,400. Of this amount, depreciable agricultural property may not exceed $250,000, with a limit of $62,500 for used depreciable property.
Purchasing rural land to build a home or farm can be an extremely rewarding endeavor, but it also requires significant capital. For those lacking upfront funds, USDA land loans in Missouri can make acquiring acreage more feasible In this comprehensive guide, we’ll explore how these financing programs work and what it takes to qualify
An Overview of USDA Land Loan Options in Missouri
The United States Department of Agriculture (USDA) offers two main loan programs to help low- and moderate-income buyers purchase vacant rural land in Missouri:
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Section 502 Direct Home Loans – This option from USDA Rural Development provides 100% financing at fixed interest rates to build, repair, renovate or relocate a home on the land.
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Section 523 Self-Help Land Loans – These loans aid qualified private non-profit organizations in developing land for participant-built housing through USDA’s Mutual Self-Help Housing program
Land-only loans are not available through USDA. You must be planning to build a primary residence on the property using Section 502 financing within two years. Or, in the case of Section 523, participate in a USDA Self-Help project.
USDA Land Loan Benefits in Missouri
USDA land loans offer several advantages for rural Missouri homebuyers, including:
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100% financing – No down payment is required. USDA loans cover purchase of land and construction costs.
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Low fixed rates – Current interest rates average around 3% on 30-year terms, very competitive with conventional mortgages.
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Flexible credit standards – Credit scores as low as 640 may qualify. USDA emphasizes repayment ability.
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Low mortgage insurance – Upfront guarantee fee of 1% of loan amount and monthly fee of 0.35% of balance.
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No prepayment penalties – You can pay off the loan early without penalty to refinance.
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33-year loan terms available – Extended repayment terms to keep monthly payments affordable.
USDA Land Loan Eligibility in Missouri
To qualify for USDA land loans in Missouri, the following criteria must be met:
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The property must be located in a USDA-designated rural area – check eligibility for your desired location.
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Your household income must be below income limits based on family size and county. View Missouri income limits.
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You must demonstrate the ability to repay the mortgage through stable/dependable income.
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Your credit score usually needs to be 640 or higher. No minimum required for Section 523 Self-Help loans.
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The site must be large enough to accommodate water supply systems and natural drainage. At least two acres is preferable.
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You must be unable to secure traditional home financing on reasonable terms.
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You must be planning to build a home on the site as your full-time residence within two years. Some exceptions apply.
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The property taxes and insurance must be affordable based on your income and expenses.
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You must meet citizenship/legal residency and other miscellaneous eligibility requirements.
How to Apply for USDA Land Loans in Missouri
Follow these steps when seeking USDA land loan financing in Missouri:
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Find a USDA-eligible rural property – Confirm eligibility by entering the address into the USDA Property Eligibility tool.
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Check income limits – Use USDA’s Income and Property Eligibility tool to see if your household income falls below the limit for the county.
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Get pre-qualified – Work with a USDA approved lender to evaluate your credit, assets, debts, and income to determine likely loan eligibility and the feasible loan amount.
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Make an offer – After getting pre-qualified, you can confidently make an offer to purchase the land knowing your financing is lined up.
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Apply for loan – Your lender will guide you through completing the full mortgage application including documents verifying income, assets, identity, etc.
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Close on property – Once approved, you’ll complete the closing process to take ownership of the land and make arrangements to start building within two years!
Self-Help Land Loans from USDA
The Section 523 Self-Help Land Loan program aids nonprofit groups that facilitate USDA’s Mutual Self-Help Housing initiative. Under this model, participants work together to build each other’s homes, dramatically reducing construction costs.
Section 523 loans at a 3% fixed rate are issued to qualified organizations to purchase and develop land for Self-Help projects. The land is then subdivided and sold to participating families. Self-Help construction typically takes 6-12 months. It’s a sweat equity model that allows hands-on involvement in building your own rural Missouri home!
Working with USDA Lenders
USDA does not offer land loans directly. You must work with a lender approved to originate these mortgage products by USDA Rural Development in Missouri. The lender submission process will handle all the application paperwork and interface with USDA on your behalf.
Most traditional banks do not participate in these specialized loan offerings. Cooperating lenders are typically community banks, credit unions, or mortgage companies located in rural areas. We recommend researching USDA lenders in your desired region when pursuing land loan financing.
Building Your Missouri USDA Home After Land Purchase
Within two years after acquiring your land using Section 502 funds, you must complete construction of your primary rural residence on the site and occupy the home. Self-Help Housing participants also need to complete building.
You can either use USDA’s Section 502 Direct Loan program or work with a private lender for construction financing and long-term mortgage debt on the completed house. USDA loans allow Sweat Equity as credit toward the borrower’s down payment.
Building a rural home in Missouri with USDA financing is an extremely rewarding experience and wonderful way to achieve the dream of homeownership. Just make sure to line up your construction loan source in advance so you don’t scramble to find funds when your two-year land loan window expires!
Alternative No Down Payment Land Options
If you don’t meet eligibility requirements for USDA land loans, some alternative no down payment options may be available including:
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Owner financing – Pay the landowner directly over time rather than obtaining traditional mortgage financing.
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Lease-to-own – Lease the property with option to buy later when you have funds for a down payment.
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Land trusts – Non-profit organizations provide an affordable ownership model with controls to prevent land speculation.
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Community land cooperatives – Residents join together to buy land more affordably and share management/governance.
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Sweat equity – Build equity in vacant land through your labor in lieu of a down payment.
With creativity and persistence, numerous paths exist to make rural land ownership achievable even with limited savings and assets. Don’t let lack of funds today stop you from pursuing your Missouri homesteading goals!
Key Takeaways on USDA Land Loans in Missouri
The bottom line is USDA’s Section 502 Direct and Section 523 Self-Help loan programs open the door for rural Missouri families to buy quality land for building a primary residence, even with little or no money down.
These specialized mortgage products offer flexible underwriting and below market interest rates to promote affordable homeownership. By partnering with an approved USDA lender, both low and moderate income families can make the dream of owning rural Missouri acreage a reality.
Loan Amount and Terms
A qualified borrower can borrow up to $649,400 to purchase agricultural land, farm buildings, farm equipment, and breeding livestock. The maximum loan is $649,400. Of this amount, depreciable agricultural property may not exceed $250,000, with a limit of $62,500 for used depreciable property.
The terms of the loan are negotiated by the lender and borrower.
The Internal Revenue Service has many rules and regulations governing the use and sale of tax-exempt bonds. As a result:
- Loans cannot be used to refinance existing debt
- Loans cannot be used for operating expenses, or to purchase inventory, supplies, or livestock other than breeding livestock
- Loans cannot be used to purchase property from a related person unless the acquisition price is for fair market value and, after acquisition, the related person will have no financial interest in the property financed with the loan proceeds
- Not more than five percent of the tax-exempt loan proceeds can be used to finance a house and the costs of issuance. Any down payment may apply toward payment on the house
- The borrower should not enter into a binding contract for any type of property until the application is approved by the authority
A non-refundable $300 fee must be submitted with the application, a loan participation fee equal to one-and-one-half (1½) percent of the loan amount but not less than $500, and a bond issuance fee equal to .05% of the bond amount must be paid at closing. The participation fee and issuance fee may be financed as a part of the loan, not to exceed 2% of the bond amount.
Borrowers qualifying for the Beginning Farmer Loan Program may also qualify for the Missouri FIRST Program administered by the state treasurer’s office. The Missouri FIRST Program makes funds available at reduced interest rates to lenders who in turn pass the savings along to agricultural borrowers. To find out more about the Missouri FIRST Program, call the state treasurer’s office at (573) 751-2372 or visit their website at www.treasurer.mo.gov. Borrowers may also qualify for the United States Department of Agriculture’s (USDA) Down Payment Loan Program and Joint Financing Plan for further reduction of interest.
MASBDA PO Box 630 Jefferson City, MO 65102-0630 Phone: (573) 751-2129 Fax: (573) 522-2416 Email: [email protected] MASBDA staff MASBDA website
How Does the Program Work?
The authority does not have a “pool” of money to finance loans. Instead, it issues a tax-exempt private activity bond to a lender to finance each loan. The loan and its collateral are assigned to the lender as security for the bond. The lender is able to lend money at below conventional interest rates due to the tax-exempt status of the bond. The steps involved in the loan process are as follows:
- The borrower locates a local participating lending institution and applies for a beginning farmer loan
- The lender sets the terms of the loan, and submits the completed application to the authority
- Applications are considered at authority board meetings
- If approved, the authority will notify the borrower and lender and work with the lender to close the loan
- Borrowers must be legal Missouri residents at least 18 years old
- Borrower must be able to provide proof of citizenship, identity and legal Missouri residence. If the borrower employs laborers, he/she must also provide proof of enrollment and participation in the federal work authorization program.
- The project must be located within Missouri
- The borrower must have adequate working capital and experience in the type of farming operation for which the loan is sought
- The beginning farmer is one who has not owned, either directly or indirectly, more than 30 percent of the median size of a farm in the county
- After the loan is closed, the borrower’s chief occupation must be farming or ranching, gross farm income must exceed any off-farm income (spouse’s off-farm income does not count in determining eligibility)
- Individuals in partnerships are eligible for loans if all partners meet the eligibility requirements
Buying a House Using USDA Rural Development Loan ($1,000 DOWN)
FAQ
What is the income limit for an USDA loan in Missouri?
What is a site loan?
How do I contact USDA Rural Development Missouri?
Call 1-800-292-8293 For general inquiries, please email [email protected]. To locate your nearest office, please refer to the map of USDA Rural Development Missouri offices . This map includes contact information for staff in local offices.
How do I use a USDA loan eligibility map?
– Visit the **USDA’s interactive map** and enter the address of the property you’re considering.The map will indicate whether the property falls within an eligible area.Eligible areas are typically shaded
How do I get a home loan with rural development?
If you would like information about obtaining a home loan with Rural Development, contact your local service center. If you have an account with us and you would like to view your mortgage account information, you must first obtain a USDA level 1 Customer ID and Password, which you can do by registering below.
Who is eligible for a USDA home loan?
Buyers in large cities and more densely populated suburbs aren’t eligible for these loans, but many living in surrounding towns and cities may be. An area with a population of 35,000 or less can be considered “rural” in the USDA’s eyes. The easiest way to determine USDA property eligibility is to look up the address in the map above.