Land Contract (LC) Guarantee Program

Land Contract (LC) Guarantee Program  

This program may have additional incentives or benefits for those who are underserved. Learn more about our terminology.

 

What is this program?

Provides FSA guarantees to the owner of a farm who wishes to sell real estate through a land contract to a beginning farmer/rancher or a farmer/rancher who is a member of a socially disadvantaged group. Under a land contract, complete ownership of a property is not transferred from the buyer to the seller until all payments under the contract are made.

 

How can I use this program?

There are two guarantee options:

• Prompt Payment Guarantee (LCPP) - Provides a guarantee of up to the amount of three annual installments plus the cost of any related real estate taxes and insurance on three occasions. The primary focus of this guarantee is to provide a guaranteed income source for the seller.
• Standard Guarantee (LCSG) - Provides a 90% guarantee of the outstanding principal balance of the land contract. The primary focus of the Standard Guarantee is to guarantee the value of the real estate.

 

Who or what is eligible and what are the eligibility requirements?

The buyer must be able to meet the following eligibility requirements:

• No federal or state conviction(s) for planting, cultivating, growing, producing, harvesting, storing, trafficking, or possession of controlled substances

• Legal ability to accept responsibility for the loan obligation

• Acceptable credit history

• United States citizenship, non-citizen national or legal resident alien of the United States, including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and certain former Pacific Trust Territories

• No previous debt forgiveness by USDA, including a guaranteed loan loss payment

• Inability to obtain sufficient credit elsewhere, with or without an FSA loan guarantee

• No delinquency on a federal debt, other than IRS tax debt, at the time of loan closing

• No disqualification resulting from a Federal Crop Insurance violation
• Must be the owner/operator of a family size farm at the time the land contract is signed
• Buyers must have a feasible business plan of operation
• Seller must also meet eligibility criteria. Contact your local FSA office for this information.

 

Are there any deadlines?

No

 

Is there anything else I should know?

• Buyer must provide a minimum down payment of 5% of the purchase price
• Land contract payments must be amortized for a minimum of 20 years with equal annual installment amounts, and a balloon payment is acceptable after 10 years
• Interest rate must be a fixed rate for first 10 years of the land contract, not to exceed the FSA direct farm ownership loan interest rate in effect at the time the guarantee is issued, plus three percentage points
• FSA Guarantee period is for a maximum of 10 years for either type of FSA guarantee, Prompt Payment Guarantee or Standard Guarantee, regardless of the term of the contract
• FSA pays for the cost of the appraisal when an appraisal is required by FSA.
• No guarantee the fee is charged by FSA
• FSA requires the seller to obtain an escrow agent for the Prompt Payment Guarantee (LCPP) or a servicing agent for the Standard Guarantee (LCSG) to monitor the land contracts while the guarantees are in effect

 

How do I apply?

Contact your local FSA office for more information.

 

 

 

Page last updated: May 2, 2023