When the lender will loan on the value of the land, things are very different. Loans on farms are similar to commercial loans in some ways. That makes sense as, after all, a farm is a business. Therefore, if you have a business plan ready for them when you apply, you will be in a better position to receive the loan. The business plan will show the lender what your intentions are, how you plan to realize them, what you need for addtional resources (which is where they come in) and how they will be used. It will also spell out your plans for the immediate future as well as the next steps you intend to take after you establish the farm. What you sell and who you will sell it to will be spelled out as well.
Like a commerical loan, you may expect to pay a bit more interest than what is advertised in the Sunday papers. But not much more at any given credit rating. What will be more is the amount they look for you to put down. There are not these big government programs that help to underwrite your loan, Fannie Mae is not going to help you. To give themselves the same degree of security, a bank will need more down, 20-25% these days. More is always better: it increases your chances of getting the remainder you need and it lowers your payments considerably as you will not be borrowing so much if you have more down.
The bank will look at the margins on your business plan - how much profit you expect to make, expected gross receipts less anticipated costs. It must square with their own ideas; otherwise, you must be prepared to explain why your receipts will be so high or why your costs can be lower than others in the same business. The experience you have counts for a great deal here. Experience can be offset if you have significant off-farm income that you are willing to devote to payments.
Basically, any lender has 2 concerns. First, he wants to make sure he gets paid back, and on time. The amount down you have gives him assurance that if the going gets tough, that you will not want to lose that money and will buckle down and do what you have to do to make sure everyone gets paid and that you have enough to live on. That amount down also gives them assurance that if there is a foreclosure, that they wil not lose. How can they ever lose? Well, property can depreciate, especially in the short term. Not likely, but iot’s possible and they have to think about that. This brings us to the second thing any lender wants, that the property is kept up or improved. The wrong person can do a lot of damage to property in a comparatively short time and they want to make sure they are still covered if that happens. The right person will improve the property and that’s what both lender and borrower want. Once they get to know you and the business relationship is well-established, they will then know what kind of person you are.