How much land do I want?

[Latestarter]

VA will not finance a producing, commercial, farm property, being purchased to remain as such, as a residence. I bought a TX AG Exempt property, 19 acres, and even with the contract written up on a "farm & ranch" purchase contract, I got my VA loan. I got it through Navy Federal CU and had to fight them tooth and nail because the type of contract it was written up on made it seem like I was buying a working "farm" or "ranch"... In reality I was buying a rural property with a residence that had acreage. VA has no limit on acreage (within reason) for financing as long as you are buying it as a residence, which you are. You're going to live there right? and raise your growing family there right? Claim it as your residence on taxes? You CAN get a VA loan! My realtor used a farm and ranch contract as it more adequately addresses the issues with a rural/farm/ranch/Ag property, and that set off alarm bells for the lender. Those three little words at the top of the contract. That type contract addresses things like fencing, outbuildings, wells and water rights, etc. which is why he used it. The key element in the VA's mind is commercial property (income producing farm), and if it will be used as such by YOU the buyer trying to get a VA loan... They don't care a whit about the seller. The home has to pass a VA inspection (livable).

Had I known the issues it was going to cause I would have had him use a regular residential purchase agreement and write in the other issues into the contract. This WILL have a bearing on the appraisal because the property will be appraised as a residential property but it shouldn't make a huge difference as the "income potential" of a farm has no bearing on the property value for residential mortgage loan purposes anyway. It DOES matter if you're doing a farm loan. You WILL want to make sure if you hire a property inspector that you make him aware that you want a "full" inspection done on ALL facets of the property, not just the home. The lender will need a copy of that invoice but will not see that report.

The VA and lender won't know about the Ag Exemption unless you bring it up. For the seller, as long as they are doing what's required, they won't lose their Ag and won't be liable for roll back taxes. As GB said, typically, it's you the buyer who doesn't do what's required to maintain the Ag and therefore you'd be liable down the road for roll back taxes. If the present owner hasn't been doing what's required then he may get hit with roll back regardless. Not your problem. Also, I can't think of any reason that the seller would have anything to do with your financing... Your lender would have no reason to speak with the seller at all.

You will NOT have to do 20% down and can get 100% financing if you are eligible through the VA. I actually did more than a 20% down, but that was to meet my (retired) back end ratio requirement (debt to income - DTI). If you don't put at least 20% down the lender will most likely force you to maintain an escrow account for taxes and insurance. I also didn't want an escrow account.

As for the Tx Land Board (VLB) loan, you must have joined the military as a TX resident or be on active duty, and stationed in TX for a specified period of time. I'm not 100% sure of the qualifications anymore as I was already retired and wasn't living here when doing my loan, so didn't qualify. You can always go to their site and check it out. http://www.glo.texas.gov/vlb/index.html When I checked, their terms weren't as good as the VA loan either in my case.

I say GO FOR IT and congrats!

 

[greybeard]

The VA and lender won't know about the Ag Exemption unless you bring it up.

How can they 'not' know it LS?
The lender is going to look at the tax records if for no other reason than to ensure there are no back taxes owed, and the existing ag exemption is all but impossible to miss. Title company will look at those records as well, and the ag exemption was discussed between myself, buyer, title co and lender at the table at closing when I sold some ag property in 2015. I don't remember now if it was the lender's rep that brought it up or the title company. It wasn't I or the buyer that did.

No, you don't have to have been a Texas resident while serving or when joined to use VLB. Any US Vet from any state can qualify, IF they are now a qualified resident.

VETERAN ELIGIBILITY
To be eligible for VLB programs, Veterans, military members and their spouses must be:

• At least 18 years of age
• A bona fide and legal resident of Texas on the date of application and meet one of the following service criteria:
  • An active duty military member
  • A member of the Texas National Guard
  • A reserve component military member having completed 20 qualifying years for retirement
  • A Veteran having served at least 90 active duty days unless discharged sooner due to service connected disability and not discharged dishonorably
  • A surviving spouse of a Veteran listed as missing in action or whose death was service connected.

 

[Latestarter]

The title company does the title search and handles the taxes. They report to the lender what the annual taxes will/should be. They also issue a title insurance policy (if ordered) to cover the buyer/lender in case of title issues which includes taxes.

 

[LMK17]

We've been TX residents for 9 years, and DH has been active duty for all of them. We did take a look at the VLB loans, but the limit looks very low-- $150K, I think. Would be OK for raw land, but doesn't get us too far with the property in question. I think, too, that the VA loan rates are more favorable.

I agree with what you've said about the VA loan restrictions. I've seen that, too: http://www.benefits.va.gov/BENEFITS/factsheets/homeloans/FarmLoans.pdf

Good point about issues cropping up if the owner isn't actually meeting the ag standards, but again, I'm confident that's not an issue here.

VA will not finance a producing, commercial, farm property, being purchased to remain as such, as a residence. I bought a TX AG Exempt property, 19 acres, and even with the contract written up on a "farm & ranch" purchase contract, I got my VA loan. I got it through Navy Federal CU and had to fight them tooth and nail because the type of contract it was written up on made it seem like I was buying a working "farm" or "ranch"... In reality I was buying a rural property with a residence that had acreage. VA has no limit on acreage (within reason) for financing as long as you are buying it as a residence, which you are. You're going to live there right? and raise your growing family there right? Claim it as your residence on taxes? You CAN get a VA loan! My realtor used a farm and ranch contract as it more adequately addresses the issues with a rural/farm/ranch/Ag property, and that set off alarm bells for the lender. Those three little words at the top of the contract. That type contract addresses things like fencing, outbuildings, wells and water rights, etc. which is why he used it. The key element in the VA's mind is commercial property (income producing farm), and if it will be used as such by YOU the buyer trying to get a VA loan... They don't care a whit about the seller. The home has to pass a VA inspection (livable).

Had I known the issues it was going to cause I would have had him use a regular residential purchase agreement and write in the other issues into the contract. This WILL have a bearing on the appraisal because the property will be appraised as a residential property but it shouldn't make a huge difference as the "income potential" of a farm has no bearing on the property value for residential mortgage loan purposes anyway. It DOES matter if you're doing a farm loan. You WILL want to make sure if you hire a property inspector that you make him aware that you want a "full" inspection done on ALL facets of the property, not just the home. The lender will need a copy of that invoice but will not see that report.

The VA and lender won't know about the Ag Exemption unless you bring it up. For the seller, as long as they are doing what's required, they won't lose their Ag and won't be liable for roll back taxes. As GB said, typically, it's you the buyer who doesn't do what's required to maintain the Ag and therefore you'd be liable down the road for roll back taxes. If the present owner hasn't been doing what's required then he may get hit with roll back regardless. Not your problem. Also, I can't think of any reason that the seller would have anything to do with your financing... Your lender would have no reason to speak with the seller at all.

As for the Tx Land Board (VLB) loan, you must have joined the military as a TX resident or be on active duty, and stationed in TX for a specified period of time. I'm not 100% sure of the qualifications anymore as I was already retired and wasn't living here when doing my loan, so didn't qualify. You can always go to their site and check it out. http://www.glo.texas.gov/vlb/index.html When I checked, their terms weren't as good as the VA loan either in my case.

I say GO FOR IT and congrats!

Thanks for sharing your experience! And you're absolutely correct- We'll be living there, and our primary goal is not to turn a profit. Because the infrastructure on this place is so good, the pastures have been improved so nicely, and some of the livestock can convey, we plan to start off doing a little more than if we were purchasing most other places. (Fortunately, the owners will remain local for a little while and are willing to help us get started.) And we'll stay in cattle for the ag exemption and will sell the extra-- so we may or may not turn a small profit, depending on whether we sell them on the commodity market or go for a premium price. But bottom line is, the farm is currently profitable and may or may not incidentally turn a profit once we're on it, but our main goal is to maintain a residence and farm for our own use. So I *think* we're satisfying the VA requirements.

Interesting about the Farm/Ranch Contract versus the Residential Contract. When we almost bought a 13 acre ag exempt place back in Feb, we started out with a Farm/Ranch contract, but our realtor suggested we switch to a Residential and, as you said, just write in the pertinent info about fences and such. That's what we did, and the owners didn't object. This current guy is afraid switching to a Residential will cause him some headaches with the tax folks.

But you did a VA loan, you kept the ag exemption, and no one got hit with a roll-back, right? How did you finally convince your lender to go through with the Farm/Ranch contract?

Dangit! I thought finding a property was the biggest hurdle, and now we're fretting about loans. Hopefully one more phone call to the tax office will get things straightened out!

 

[LMK17]

According to this appraiser website it is for equity loans only unless they are diary production.
https://appraisersforum.com/forums/threads/texas-ag-exemption-affects-loan.200085/
The website has some thing that pops up and says it is broken but you can still read the discussion.

From the info i am finding the ag exempt status has nothing to do with the VA loan in terms of being illegal or causing a problem with them having to pay rollback taxes unless they were illegally using ag exempt. A first mortgage is not an equity loan so the law does not apply for the ag exempt portion of the show.

Thanks for the link! What a convoluted regulation that seems to be! I agree, though, that it doesn't apply in this case.

 

[greybeard]

The title company does the title search and handles the taxes. They report to the lender what the annual taxes will/should be. They also issue a title insurance policy (if ordered) to cover the buyer/lender in case of title issues which includes taxes.

Then the lender will definitely know about the ag appraisal. The VA itself will probably know as well.

LMK:
Don't get too wrapped up in the 'profit' aspect. Keep eyes on the prize--'production'.
To keep ag exemption, they want income a minimum of only one year out of 5. Buy a dink steer or two in the 3rd year. Background 'em on grass for 3-6 months and haul them to the sale barn when prices have gone up. Keep some outlay records if only in ledger, tho some receipts are a plus. Keep a copy of the sale barn weight and price receipt and a copy of the check. You've now met the requirements for that 5 yr period.
Tips to keeping ag exemption:
GET FARM PLATES for your truck and any trailers you have. To do this, you also have to get a Texas Farm tax certificate. Farm tags are cheaper anyway and allow you to haul more on a trailer than regular tags do. It's one of the things the appraisal district will scrutinize if they decide to look ya over and it stands out like a sore thump to the appraisal district manager. "This person is on ag--farm tags are cheaper..If they are really involved in farming, why don't they have farm tags and a tax certificate?".

NEVER tell a local rancher or row cropper that you are a hobby farmer and have an ag exemption--ever! Many get upset about it and will call the appraisal district. It's like people that draw disability and brag to their friends they get a monthly check when they're really able to work. Eventually, someone is going to turn them in.

Put as much effort into making your place look like a farm as you do in making your house look like a home. I know a guy between here and town that go on ag after building a nice house on about 25 acres, by stocking it with a big herd of meat goats. Kept them about a year till they ate down ll the weeds and brush then sold them and did nothing else ag related outside his yard and showplace of a house. Pastures grew back up into weeds and brush and the appraisal office jerked his exemption and he got stuck with a rollback.

Keep you fences up and in good shape. Your livestock on another person's property or the roadway is a big no-no in my county. First time, the deputy will help get them back in. 2nd or third time, they send a mounted deputy out to inspect the fences and can impound all the stock. The neighbors can also file against you and likely as not judge will order the landowner to sell their stock and by-by ag exemption. I saw it happen 3 years ago to an old rancher that had run cattle for decades here that couldn't physically keep his fences up anymore.

Remember always, it is the State of Texas that wants land under ag production. For the counties, ag exemptions are a property tax revenue drain. Counties are getting more picky about ag exemptions every year and will look for any reason to refuse it or jerk it. They like to get those rollbacks too. That's free money they hadn't even counted on.

 

[misfitmorgan]

Things must work really differently in Texas...here no way would a seller try to tell you you couldnt get a certain type of loan for their property, if anyone would it would be the lender. If the owner ended up paying rollback taxes that is on them and the rollback if its for 1yr wouldnt be much i wouldnt think, if it is for the 5yr then they were doing something wrong anyhow.

Whichever the case may be if he is agreeing to sell the place to you and is trying to give you reasons on why you have to go with his financing options....I would be EXTREMELY weary. We just got screwed out over a year of hard hard labor and work we put into a place we were going to buy but cant(trailer to old) and the owners will not work with us on, even with 20% down. If your going owner finance know that normally those have a higher interest rate and sometimes banks will not honor them for refinance and your not eligible for a 1st mortgage on it if your buying it already according to some lenders. So it could screw you over down the road.

 

[LMK17]

GET FARM PLATES for your truck and any trailers you have. To do this, you also have to get a Texas Farm tax certificate. Farm tags are cheaper anyway and allow you to haul more on a trailer than regular tags do. It's one of the things the appraisal district will scrutinize if they decide to look ya over and it stands out like a sore thump to the appraisal district manager. "This person is on ag--farm tags are cheaper..If they are really involved in farming, why don't they have farm tags and a tax certificate?".

NEVER tell a local rancher or row cropper that you are a hobby farmer and have an ag exemption--ever! Many get upset about it and will call the appraisal district. It's like people that draw disability and brag to their friends they get a monthly check when they're really able to work. Eventually, someone is going to turn them in.

Put as much effort into making your place look like a farm as you do in making your house look like a home. I know a guy between here and town that go on ag after building a nice house on about 25 acres, by stocking it with a big herd of meat goats. Kept them about a year till they ate down ll the weeds and brush then sold them and did nothing else ag related outside his yard and showplace of a house. Pastures grew back up into weeds and brush and the appraisal office jerked his exemption and he got stuck with a rollback.

Keep you fences up and in good shape. Your livestock on another person's property or the roadway is a big no-no in my county. First time, the deputy will help get them back in. 2nd or third time, they send a mounted deputy out to inspect the fences and can impound all the stock. The neighbors can also file against you and likely as not judge will order the landowner to sell their stock and by-by ag exemption. I saw it happen 3 years ago to an old rancher that had run cattle for decades here that couldn't physically keep his fences up anymore.

Remember always, it is the State of Texas that wants land under ag production. For the counties, ag exemptions are a property tax revenue drain. Counties are getting more picky about ag exemptions every year and will look for any reason to refuse it or jerk it. They like to get those rollbacks too. That's free money they hadn't even counted on.

Thanks for the tips on keeping the exemption!

We had planned to start small and take several years to build up to full production. I wasn't even sure if we could keep the Ag, depending on the size of the property and how crappy the farmland was. But this place really changed everything! I'd love to share a link with photos of the farm, but I'm sure you all can understand why I'm not going to advertise our new address in a public forum. I'll attach a photo from yesterday, though. We were there when one of the goats kidded. DS videoed the event, and I snapped a few photos, too. You can see much of the back pasture in the photo. The entire place is that lush. They keep 5+ head of cattle on the property year round, plus a little herd of goats, and the grass is way ahead of them right now. Last year, they cut nearly 40 round bales off the place, in addition to the animals. *It's only 20 acres, with 15 acres in pasture!* These folks have done their homework and run the entire place to organic standards, implement rotational grazing, use permaculture principles, the whole 9 yards. It's a GOOD piece of farmland-- I'm almost afraid my biggest challenge will be not screwing it up. Anyway, we'll have no problem keeping the ag AND doing anything we want to do for ourselves. And like I said, the owners seem great and are volunteering their help with the place. They seem pretty happy that like-minded young people want to take over their place and keep their legacy going.

Good point about the farm tags! I hadn't thought about that.

The fences are really nice. Mix of goat fence and 8 strand barbwire, with high and low hotwire on the inside AND outside of the perimeter fences. Pasture divisions are mostly single stand hotwire. The charger is good for something like 20 miles of fence. And they have a nifty little alarm that tells them when there's a short. We'll definitely do our best to maintain the fences, and as long as we do, I don't see us having any problems with critters getting in or out. And how sad about the older rancher! It's too bad when folks get older and their places get ahead of them... We keep seeing that with the places that are up for sale now.

Makes sense about the counties and ag exemptions. Fortunately, the folks in the tax office in this county seem genuinely friendly toward ag exempt folks and on the up and up. It's a largely agricultural county, so I'm sure that helps.

Photo of the goats and pasture: https://photos.google.com/album/AF1.../AF1QipN47Ql285wYVskSA6LziCqcL3REOQpttob8BBw1

 

[LMK17]

Things must work really differently in Texas...here no way would a seller try to tell you you couldnt get a certain type of loan for their property, if anyone would it would be the lender. If the owner ended up paying rollback taxes that is on them and the rollback if its for 1yr wouldnt be much i wouldnt think, if it is for the 5yr then they were doing something wrong anyhow.

Whichever the case may be if he is agreeing to sell the place to you and is trying to give you reasons on why you have to go with his financing options....I would be EXTREMELY weary. We just got screwed out over a year of hard hard labor and work we put into a place we were going to buy but cant(trailer to old) and the owners will not work with us on, even with 20% down. If your going owner finance know that normally those have a higher interest rate and sometimes banks will not honor them for refinance and your not eligible for a 1st mortgage on it if your buying it already according to some lenders. So it could screw you over down the road.

Oh, it wasn't anything like that! We had given them our pre-approval letter, and they had some questions, I think, about how a VA loan works-- something like that. Anyway, from what research the seller did into the loan, he got the idea that maybe the VA loan wouldn't work out for a farm. Someone told him that he'd have to drop the ag exemption (basically true) before the loan went through, and he made the leap to thinking that he'd get hit with a roll back due to his dropping the ag (not true). He was understandably nervous about the idea of getting hit with a $$$$ penalty. As far as his "recommending" loans, it was more along the lines of, "I'm not sure the VA will work out, but I think maybe XYZ and other loans will, although those loans require more money down. Let's all do our homework and figure out how we can do this." When I called the guy's wife with the info I gleaned today from the VA and tax office, she was quite happy and relieved that we had been overthinking things.

We're not going the owner finance route. That hasn't actually been an option at all, and I can see why those would cause problems.

 

[misfitmorgan]

Oh, it wasn't anything like that! We had given them our pre-approval letter, and they had some questions, I think, about how a VA loan works-- something like that. Anyway, from what research the seller did into the loan, he got the idea that maybe the VA loan wouldn't work out for a farm. Someone told him that he'd have to drop the ag exemption (basically true) before the loan went through, and he made the leap to thinking that he'd get hit with a roll back due to his dropping the ag (not true). He was understandably nervous about the idea of getting hit with a $$$$ penalty. As far as his "recommending" loans, it was more along the lines of, "I'm not sure the VA will work out, but I think maybe XYZ and other loans will, although those loans require more money down. Let's all do our homework and figure out how we can do this." When I called the guy's wife with the info I gleaned today from the VA and tax office, she was quite happy and relieved that we had been overthinking things.

We're not going the owner finance route. That hasn't actually been an option at all, and I can see why those would cause problems.

Oh good and i'm glad your getting it sorted out. The way it sounded at first seemed a little fishy. That picture link doesnt work btw