When you’re financing farmland, one of the biggest questions on your mind is likely: “What’s the interest rate on this loan?” Because real estate loans often span 10 to 30 years, the interest paid over time significantly impacts your total investment.
While the interest rate shouldn’t be the only factor in your decision, it’s a critical one – and it’s worth exploring how you can qualify for the lowest possible rate. Here are six practical steps you can take to secure a lower interest rate on a land loan.
1. Improve Your Credit Score
Lenders evaluate your creditworthiness when determining your interest rate. A higher credit score signals lower risk, which generally leads to a better rate.
While you can still qualify with a lower credit score, your rate may be higher to offset perceived risk. Paying off debt, avoiding late payments, and limiting new credit inquiries can help improve your credit score.
You may want to focus on improving these 16 financial ratios. As a capacity lender, we view accrual capacity and cash capacity as very important.
2. Provide a Detailed Business Plan
A strong business plan communicates your goals, financial strategy and repayment approach. It shows lenders you’ve thought through your land investment and have a plan to make it successful. This builds trust and may lead to more favorable terms.
Highlight your operational experience, expected income, cash flow projections, and strategies to manage expenses and risks.
3. Increase Your Down Payment
Making a larger down payment is another way to approach lowering the rate of your land loan. Putting more money down lowers the lender’s risk and signals a strong financial commitment to the land purchase.
On new purchases, down payments of 25-35% are typical on many land loans. The amount of the down payment is impacted by many factors and is specific to each credit request.
4. Choose a Shorter Loan Term
Land loans typically range from five to 30 years, but shorter terms usually come with lower interest rates. A 20-year fixed rate is one of the most common loan terms, offering a balance between lower monthly payments and competitive interest rates.
The right term for your operation will depend on your specific situation, including your short- and long-term plans.
5. Leverage Farm Income or Assets as Collateral
If you own other land or equipment, or have strong farm income, these factors can strengthen your loan application. Tangible assets may serve as collateral, while your income demonstrates your repayment capacity, both of which can reduce perceived risk for the lender.
This could help you qualify for a lower rate, especially if you’re consolidating financing or expanding your operation.
6. Work With a Specialized Ag Lender
Not all lenders are created equal. At Farm Credit Services of America, we understand the unique nature of farm operations, land valuation and rural financing.
As a lender dedicated to supporting farmers, ranchers, and rural land buyers, we offer tailored products and underwriting practices that reflect the day-to-day realities of your operation. And as a customer-owned financial cooperative, the more business you do with us, the more competitive your rate may become.
Bonus: Explore Rate Conversion or Refinancing Options
With our rate conversion option, you can switch to a lower rate without reapplying or rewriting your loan. For example, if you locked in a 6% fixed rate on a 20-year note, but a year later the rate drops to 5%, you can opt to do a rate conversion from 6% to 5%. Your fixed rate acts as a ceiling, not a floor.
Once you're approved, we’ll lock your interest rate for up to 45 days at no cost. If you need more time, we offer extended rate locks for a small fee or slightly higher rate.
Our financial officers are here to help you make informed decisions for your land financing needs. Whether you're purchasing farmland for the first time or expanding your operation, contact us to explore your options and secure a land loan that’s right for you.
