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Can I mortgage my farm to address card debt?

January 15, 2013

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

home mortgage

Q: We have $55,000 in credit card debt, mostly due to medical bills. We don't have house or car payments, and our credit score is 720. We'd like to get a mortgage so we can consolidate that credit card debt and take advantage of lower interest rates. However, we've called several mortgage companies, and because we have 240 acres and some farm equipment, they consider us a farm and won't write us a home mortgage. Both my husband and I are employed, and we have income from an IRA as well as from some cows we sell. How can we get financing?

A: Transferring your debt from credit cards to a mortgage makes a great deal of sense. Current mortgage rates are below 3.5 percent, while the Federal Reserve reports that the average rate being charged to credit cards these days is 13.22 percent. Also, with your income and assets, you have more tools to work with than many people with credit card debt. The question is, how to apply those tools against that debt.

Here are three options you might consider:

  • Get farm financing. If banks look at your property as a farm, then you might try getting financing on that basis. Check out the web site of the Farm Service Agency, which is part of the U.S. Department of Agriculture. You'll find the site at www.fsa.usda.gov, and right on their home page they have several categories of information about farm financing. Take a look and see if any of these programs seems appropriate to your situation.
  • Sell off some of your property. If you have 240 acres but aren't farming it full-time, some of this property might be underutilized. If so, consider whether it would make sense to sell off some of your property to pay off your credit card debt. Think of it this way: You are probably paying 13 percent or more on your debt. Are you earning a better than 13 percent return on the land you own?
  • Split your property into residential and farming units. Although you don't farm full-time, since you derive some income from selling livestock there must be some farm activity going on. You might want to ask a couple mortgage lenders whether it would make a difference if you formally split your property into a residential unit and a separate farming unit. That might allow you to qualify for a home mortgage on the residential portion.

Besides your house and land, one of the other assets you have to work with is a decent credit score. But you would be wise to address your high level of credit card debt before it starts to affect that score.

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