8 BULLETIN 968, U. S. DEPARTMENT OF AGRICULTURE. 



It seems clear that, in general, persons borrowing to buy land have 

 borrowed a larger proportion of the value of the land mortgaged 

 than the average for all borrowers, which was found to be 37 per cent 

 for $251,426,600 out of the total $282,007,781 outstanding Federal land 

 bank loans November 30, 1919.^ For owner-buyers the loan is 41.5 

 per cent of the value, while non-owning buyers appear to have found 

 it necessary to borrow nearer the limit allowed by the Federal farm^ 

 loan system, their loans averaging 44.2 per cent. 



The figure 44.2 per cent is very close to the limit allowed by law 

 for, although the loan may be 50 per cent of the value of the land, 

 only 20 per cent is allowed on the value of permanent insurable im- 

 provements, so that the average percentage must be considerably less 

 than 50 per cent of the value of the farm. In fact, on the basis of 

 the ratio of the value of land to the value of buildings for the entire 

 United States, as shown by the 1910 census, the average maximum 

 that could be loaned under the law would be 44.5 per cent of the value 

 of land and buildings combined. Thus, it is obvious that those bor- 

 rowing for the purpose of purchasing land have approximated the 

 maximum that may be borrowed under the law. 



COST OF OBTAINING A FEDERAL FARM LOAN. 



Objection is sometimes raised to the use of Federal farm loans on 

 the ground of their initial cost. If it is expensive to obtain these 

 loans the purchaser of land may not be willing or able to stand the 

 added expense at the start over what it might cost him to obtain a 

 temporary loan from some other source. Lack of comparable infor- 

 mation makes it difficult to compare the cost of obtaining loans from 

 the Federal land banks with the cost of obtaining farm loans from 

 other sources. Answers to questions designed to elicit information on 

 the cost of Federal farm loans were received from 1,765 borrowers, 

 and these answers make it possible to present information on the 

 average cost of these loans. This average cost amounted to $50.84, 

 or 1.43 psr cent of the mortgage given to the Federal land bank, 

 which averaged $3,541. 



Borrowers of small amounts find the loans from the Federal land 

 banks relatively more expensive than larger borrowers do, and this 

 makes it more difficult for the buyers of inexpensive or smaller 

 tracts of farm land to finance their purchases. There were 347 bor- 

 rowers reporting the cost of borrowing who gave mortgages to the 

 Federal land banks for $1,000 or less, and the loans cost these 

 borrowers an average of $36.01, or 4.82 per cent of the mortgage 

 given. On the other hand, while the cost of borrowing averaged 



1 Third Annual Report of the Federal Farm Loan Board, 66th Congress, 2d session, 

 House Document 553, p. 12. 



