Approving a ranch loan involves two assessments. The lender needs to be satisfied that the borrower can carry the loan, and separately that the property is the kind of asset it can lend against. Buyers tend to focus on the first and are surprised by the second.
Alex Leamon, who originates loans for Hall and Hall’s finance team, explains.
“If the property you are purchasing has historical income and expenses that can be analyzed, this can help support the projections prepared by the borrower.”
Alex Leamon, Hall and Hall
Hall and Hall is a commercial lender, so the documentation is what any commercial lender would ask for: personal and business tax returns, current financial statements for any business, and a personal balance sheet. What differs from a bank is how the numbers are read.
“When I loaned against commercial real estate at the bank, if I had a four-unit strip center, I wanted to make sure the rents less expenses could cover the mortgage payment. On our side at Hall and Hall, we typically have to analyze each property based on the borrower’s intended use. Farm and ranch property traditionally generates enough income to support debt repayment. In some cases, the property net income might fall a little short of 100% repayment and that is when we look to the co-borrowers or guarantors to help bridge that gap. Other properties might be used primarily for recreation, such as hunting, with minimal use as an agricultural property. In these cases, we primarily look to the individual to support debt repayment. In any case, we analyze our credit on a global basis to ensure all debt obligations can be met, including the property we are looking to finance.”
Alex Leamon, Hall and Hall
Hall and Hall’s loans are agricultural, meaning the property must qualify as agricultural. Buyers hear that and assume it rules out recreational land. It does not.
“Most land that people would classify as recreational or hunting land can be used for agricultural purposes and most of that land has historically been used for agricultural purposes. If the property has the ability to be used for agriculture, then nine times out of ten it can be considered an eligible property.”
Alex Leamon, Hall and Hall
The test is ultimately the appraiser’s finding of highest and best use, which must be some form of agricultural.
This is why he asks to see the online listing during the first call, to make sure the property is eligible for financing with Hall and Hall.
Alex’s advice for a buyer who knows that financing will be a part of the plan:
“I try to keep the documentation request to a minimum. If I ask for it, it’s because I need it. Having those things at your fingertips, so when the lender says I need this, and you’ve already got it, it’s going to speed things up quite a bit.”
Alex Leamon, Hall and Hall
The first is the down payment. Many buyers assume they will need 40 to 50 percent down to borrow against land. Alex says the average at Hall and Hall is closer to 20 to 25 percent, and that 20 to 30 percent is the sweet spot for market-rate.
The second is that the only options are a bank or seller financing. There is a specialist market of farm and ranch lenders whose entire business is this asset class, and a buyer who does not know it exists will either overpay or give up.
If you would like to know whether you and the property you have in mind would qualify, contact Hall and Hall’s finance team. Bring the listing; they will look at it with you on the call.
Global means the whole picture: every business, every income source, every obligation. The lender is asking whether there is enough margin across the borrower’s affairs to carry a property that will likely cost more than it earns.
That also explains how projections are treated. A borrower with a track record as a producer, whose tax returns show years of operating a farm or ranch, can be underwritten partly on what the new property should produce under good management. A buyer who has never farmed or ranched may take more time to get to the property’s stabilization and maximize the property’s production.
“If the property you are purchasing has historical income and expenses that can be analyzed, this can help support the projections prepared by the borrower.”
Alex Leamon, Hall and Hall
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How much down payment do I need for a ranch loan?
Less than most buyers expect. At Hall and Hall, the average is around 20 to 25 percent, and 20 to 30 percent is the typical range for market-rate financing, compared with the 40 to 50 percent many assume.
Can I get a ranch loan for a hunting property?
Usually, yes, so long as the property can be used for agriculture, such as grazing on its pasture.
What most often stops a ranch loan closing?
Title problems, particularly legal access. The lender must confirm the property has legal as well as physical access, in the same place, and will ensure easement access before closing. A low appraised value is the next most common reason why a transaction might not close.
