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How to Finance Your Own Vineyard

Some banks are seeing a growing breed of vineyard buyer: San Francisco or Silicon Valley executives or entrepreneurs wanting to wine and dine friends with their private-label wine.

In response to increasing demand from these and other buyers, Exchange Bank earlier this year formalized a vineyard-loan program and now offers 10- and 15-year, fixed-rate loans, says Steve Herron, manager of the commercial banking group for the Santa Rosa, Calif.-based bank. It also offers a variety of adjustable-rate products with rate reset terms up to 10 years.

Lone Tree, Colo.-based national lender Farm Plus Financial has similar vineyard-mortgage products, says Josh Mitchey, business-development manager.

Vineyard borrowers usually will have to go to community and specialty agricultural banks rather than big lenders, Mr. Mitchey says. Compared with standard home loans, vineyard-home mortgages typically have slightly higher interest rates and shorter terms. Underwriters are likely to carefully scrutinize any property over even just 1 acre.

Most also require larger down payments-usually 30%-but most vineyard estate buyers put down 50% or more, says Mr. Herron. By comparison, down payments for jumbo loans-those that exceed government limits-can go as low as 20%, 15% or occasionally even 10%.

Minimum credit scores are similar to those required for jumbo mortgages-Farm Plus Financial usually starts at 680 and Exchange Bank starts at 700.

Interest rates on vineyard properties are typically higher than on home loans because the business aspect increases the risk for the lender, Mr. Herron says. Exchange Bank’s vineyard loans have rates that start at least one-eighth of a percentage point higher than a jumbo mortgage and one-fourth of a point above a conforming loan, he adds. FarmPlus Financial rates can be as much as a point higher.

Finally, homes with vineyards require a specialized, more expensive appraisal to assess a vineyard’s potential yield, Mr. Herron says. But because borrowers are affluent enough to make high down payments, a low appraisal rarely kills a deal.

One boon is that many lenders will consider projected vineyard income when qualifying the borrower. Farm Plus vineyard loans allow up to a 1:1 ratio in which cash flow generated by the vineyard covers all expenses.

Nevertheless, because of the uncertainties of farming, the borrower’s salary, business profits, investments and retirement earnings remain crucial to qualification, Mr. Herron says. “Our loans are primarily based on the income stream of the borrower.”

Despite tighter requirements and higher costs, the type of buyer who wants a vineyard estate likely will qualify for a loan if he has sufficient cash for the high down payment, says Ross Liscum, broker/associate with Century 21 North Bay Alliance in Santa Rosa, Calif. In Sonoma County in just the past five months, one vineyard property was sold in an $11.5 million cash deal, and buyers financed four other vineyards for between $2.9 million to $7.3 million, he adds. Here are some other considerations:

Consider a jumbo. If the vineyard portion of the property is very small, a lender may still allow a residential jumbo mortgage, above conforming loan limits of $417,000 in most places and $625,500 in some high-price areas, says Paul Wible, a senior executive vice president at San Francisco-based Bank of the West. However, in most cases, a loan that allows for business use will be needed, he adds.

Payment periods vary. Vineyard mortgages differ from standard residential mortgages in their payment schedule. Instead of monthly payments, they can be quarterly or semiannual, even annual to correlate with the harvest cycle, Mr. Mitchey says.

Factor in all costs. “Even 5 to 10 acres is a lot of work,” says John Aguirre, president of the California Association of Winegrape Growers. Most small-scale vineyard owners also will want to factor in the cost of a vineyard management company, he adds.

Be patient. Many vineyard estate sales aren’t advertised, so a local specialized real-estate agent is recommended, says Mr. Liscum. Also, home buyers planting new vines should expect to wait four to five years before the first crop.

Source: WSJ