Understanding USDA Land Loan Rates in 2023

Buying land to start or expand a farm can be an exciting yet daunting endeavor. With land prices constantly fluctuating, securing financing at a reasonable interest rate is key for the success of any farming operation. This is where USDA land loans can help.

In this article, we’ll break down everything you need to know about USDA land loan rates for 2023. Whether you’re a beginning farmer looking to purchase your first parcel or an established producer seeking to add more acres, this guide will provide valuable insights into current USDA land loan options.

An Overview of USDA Farm Loans

The United States Department of Agriculture (USDA) offers several loan programs to help agricultural producers purchase land and finance their operations. These loans are provided by USDA’s Farm Service Agency (FSA) and offer favorable rates and terms compared to conventional commercial lending.

There are three main types of direct farm loans available through FSA

• Farm Ownership Loans – Also known as real estate loans, these provide financing to purchase or enlarge a farm or ranch Loan terms are up to 40 years

• Farm Operating Loans – These provide financing for expenses related to a farming operation, including purchasing livestock and equipment Terms are generally 1-7 years

• Farm Microloans – Smaller operating loans up to $50,000 with a shortened application process. Designed to help small, beginning, and niche farmers.

In addition to direct loans, FSA offers guaranteed loans in partnership with commercial lenders. With these, the private lender provides the financing and FSA guarantees a portion of the debt.

Current USDA Land Loan Interest Rates

USDA farm loan interest rates are adjusted monthly based on the cost of borrowing from the U.S. Treasury. Rates are typically very competitive, which makes these loans appealing for land purchases.

Here are the current USDA land loan interest rates as of March 2023:

• Farm Ownership Direct Loans: 4.750%
• Farm Ownership Direct Loans (Joint Financing): 3.250%
• Farm Ownership Down Payment Loans: 1.500%

So for a $500,000 direct farm ownership loan right now, the interest rate would be 4.750%.

With joint financing, which allows FSA to provide financing along with a commercial lender, the FSA portion of the loan would have an interest rate of just 3.250%.

Down payment loans help beginning farmers who may not have enough equity or resources for a standard ownership loan. These have a fixed interest rate of just 1.5% – an incredible deal for securing land.

What Factors Influence USDA Land Loan Rates?

USDA land loan rates are largely determined by the cost at which the federal government can borrow money. This cost of borrowing is influenced by several economic factors:

• Federal Funds Rate – This is the interest rate banks charge each other for overnight lending. Raising this rate is a key way the Federal Reserve fights inflation. Higher federal funds rates increase borrowing costs for USDA.

• 10-Year Treasury Yield – The return on 10-year U.S. Treasury notes is a benchmark for many lending rates. Rising Treasury yields increase USDA’s loan costs.

• U.S. Budget Deficit – Higher federal budget deficits can pressure Treasury yields as more government borrowing competes for capital. This may raise USDA’s land loan rates.

So in times of high inflation or large budget deficits, USDA land loan costs will likely rise. However, the rates are still very affordable versus commercial farm mortgages.

How USDA Land Loan Rates Compare to Other Options

To see how competitive USDA land loan rates are, let’s compare them to average interest rates for other types of farm real estate loans.

Based on a Federal Reserve survey of commercial ag lenders in Q4 2022, here were the average rates:

• 5-Year Fixed-Rate Mortgages – 6.11%
• 5-Year Adjustable-Rate Mortgages – 5.55%

As you can see, commercial farm mortgage rates are considerably higher than USDA’s land loan rates. The difference is even more pronounced when you factor in the longer terms and low down payments offered by FSA direct loans.

Some beginning farmers may also consider seller-financed deals to purchase land. But these typically charge higher interest rates and require large down payments compared to USDA options.

Clearly, USDA loans offer huge savings versus commercial farm mortgages or private seller financing deals. The low cost of capital helps farmers afford more acreage to support their operations.

Who Qualifies for USDA Land Loans?

To qualify for USDA land loans, an applicant must:

• Be a citizen of the United States or legal resident alien
• Have sufficient education, training, or experience for the anticipated farm operation
• Have a satisfactory credit history
• Be unable to obtain sufficient capital elsewhere
• Have an acceptable plan for the proposed farming operation

The applicant’s finances and collateral must indicate the ability to repay the loan. FSA loan officers will carefully evaluate these factors when processing loan applications.

For guaranteed loans that involve a commercial lender, applicants may need to meet more stringent criteria around credit history, past earnings, and collateral.

There are special programs and interest rate advantages available for underserved farmers, including women, minorities, and beginning producers with less than 10 years of experience.

So be sure to ask your local FSA office about opportunities if you are in one of these groups.

How Can I Apply for a USDA Land Loan?

The first step is to contact your local USDA Service Center and ask to speak with an FSA farm loan officer. They will explain the application process and requirements.

You’ll need to fill out USDA’s uniform application for direct farm loans plus supply documents verifying your financial standing. FSA also requires a farm operating plan describing how you intend to use the purchased land profitably.

For guaranteed loans involving a commercial lender, you’ll first want to speak with banks or other ag lenders to find one offering USDA programs.

I’d recommend starting the land loan process at least 6 months before you need financing secured. This provides enough time for loan underwriting and approval. Be sure to ask the FSA loan officer about any state-specific deadlines as well.

The USDA also provides an excellent step-by-step land loan guide on Farmers.gov to walk you through the entire process.

Key Takeaways on USDA Land Loan Rates

Financing land purchases through FSA direct farm ownership loans can save tens of thousands in interest charges compared to commercial mortgages.

For 2023, USDA land loan rates range from 1.5% on down payment loans up to 4.750% for standard direct financing. These very favorable interest rates help farmers afford the acreage needed to run profitable operations.

Just be sure to account for some lead time in the land loan application process. Working with your local FSA office and having a viable farm business plan are also critical steps for securing USDA financing.

Owning agricultural land is an aspiration for many farmers across the country. USDA land loans help make those dreams financially feasible. Be sure to leverage these programs if you are looking to start or expand your farm’s footprint this year!