How Is the LESA Amount Calculated by the Lender? (w/Examples) + FAQs

A lender does not calculate a “LESA amount” for a traditional farm loan. This question reveals a critical confusion between two entirely separate systems that share an acronym: the Land Evaluation and Site Assessment (LESA), a government land-planning tool, and the Life Expectancy Set-Aside (LESA), a financial reserve in the reverse mortgage industry. Agricultural lenders do not use the government’s LESA score to determine loan amounts; they use a formal property appraisal to establish market value.

The primary conflict arises from the Farmland Protection Policy Act (FPPA), a federal law designed to minimize the conversion of important farmland to non-agricultural uses by federal programs. This act mandates a system like LESA for government planning, which values land based on its agricultural quality. The immediate negative consequence is that a high LESA score, which indicates excellent farmland, can trigger zoning restrictions that prohibit development, thereby lowering the land’s market value in an appraisal and reducing the amount a farmer can borrow against it.

This disconnect impacts a significant portion of the U.S. land base, as over 1.1 million acres of agricultural land were converted to urban and low-density residential uses in 2022 alone. Understanding how land is valued for public policy versus private lending is essential for landowners, developers, and lenders navigating this complex landscape.

Here is what you will learn by reading this article:

🗺️ The Two Worlds of “LESA”: You will understand the fundamental difference between the government’s LESA score for land planning and the financial LESA used in reverse mortgages, ensuring you never confuse the two again.
🚜 How Ag Lenders Actually Value Your Farm: You will learn the detailed process lenders use to approve farm loans, focusing on professional appraisals and the “Five C’s of Credit,” not a government score.
⚖️ The High-Score Paradox: You will grasp why a high LESA score, while good for conservation, can sometimes lower your property’s appraised value and the loan amount you can secure.
🔢 Step-by-Step LESA Calculation: You will see a detailed breakdown of how a government LESA score is calculated, including the Land Evaluation (LE) and Site Assessment (SA) components, with real-world examples.
👵 Reverse Mortgage Set-Asides Explained: You will learn precisely how a financial LESA is calculated for a reverse mortgage and why it is required for certain borrowers to prevent default.

Deconstructing LESA: A Tale of Two Systems

The term “LESA” represents two completely different concepts in two separate industries. One is a public policy tool used by government planners to evaluate land. The other is a risk management tool used by mortgage lenders to handle a borrower’s future expenses. Mistaking one for the other can lead to significant misunderstandings about property value and loan eligibility.

The Government LESA: A Report Card for Farmland

The first LESA is the Land Evaluation and Site Assessment system. It was created by the U.S. Department of Agriculture’s (USDA) Natural Resources Conservation Service (NRCS) in 1981. Its purpose is to give state and local governments a consistent, unbiased method for rating the agricultural importance of a piece of land. It is a tool for public planning, not private lending.

The LESA system produces a numerical score, often out of 100 or 300 points, that acts like a report card for a farm’s quality. A high score means the land is excellent for agriculture and should likely be preserved. A low score suggests the land is less critical for farming and could potentially be developed. Government bodies like county planning commissions use these scores to make decisions about zoning, conservation programs, and development permits.

The Financial LESA: An Escrow Account for Reverse Mortgages

The second LESA is the Life Expectancy Set-Aside. This is a financial tool used exclusively in the reverse mortgage industry, specifically for Home Equity Conversion Mortgages (HECMs). It is an amount of money withheld from the borrower’s loan proceeds at closing. The lender uses these funds to pay the borrower’s future property taxes and homeowners insurance.

This LESA is not a score but a specific dollar amount. It was made a mandatory requirement by the Federal Housing Administration (FHA) in 2015 following the Reverse Mortgage Stabilization Act of 2013. The goal is to prevent defaults, which often happened when seniors took a lump-sum payment but later struggled to pay their taxes and insurance. The financial LESA acts like an escrow account to protect both the borrower and the lender.

Comparison	Land Evaluation & Site Assessment (USDA LESA)	Life Expectancy Set-Aside (Financial LESA)
What It Is	A numerical score rating land quality for farming.	A dollar amount withheld from a loan to pay bills.
Who Uses It	Government planners and conservation agencies.	Reverse mortgage lenders.
Primary Goal	To guide land-use decisions and protect farmland.	To prevent loan default by covering taxes and insurance.
Governing Body	USDA Natural Resources Conservation Service (NRCS).	Federal Housing Administration (FHA).
Output	A score (e.g., 75 out of 100).	A dollar amount (e.g., $75,000).

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Decoding the Numbers: What’s Inside a Government LESA Score?

A government LESA score is not a single, simple number. It is the final result of a detailed, two-part calculation that combines the scientific qualities of the soil with the practical, real-world context of the property. The final score is the sum of the Land Evaluation (LE) score and the Site Assessment (SA) score.

Part 1: The Land Evaluation (LE) – Grading the Soil’s Natural Talent

The Land Evaluation (LE) component is a purely scientific assessment of the soil’s inherent quality for agriculture. This part of the score is based on objective data from the National Cooperative Soil Survey, a massive database maintained by the NRCS. It answers the question: “How good is this dirt for growing things?”

The LE score is typically worth a maximum of 100 points and is determined by two primary metrics used across the country, particularly in states like California.

Land Capability Classification (LCC): This system groups soils into eight classes, from Class I to Class VIII. Class I soils are the best, with few limitations for farming, while Class VIII soils are generally unsuitable for crops. An appraiser would assign a point value based on the class; for example, Class I soil might get 100 points, while Class IV soil gets only 40 points.
Storie Index Rating: This is another soil rating system, used extensively in California, that provides a score from 0 to 100. It evaluates four factors: the soil profile, surface texture, slope, and other conditions like drainage or erosion. A high Storie Index indicates excellent potential for intensive farming.

To get the final LE score for a property with multiple soil types, a planner calculates a weighted average. They determine the acreage of each soil type, multiply it by that soil’s rating (LCC or Storie), and then sum the results to get a single, representative LE score for the entire parcel.

Part 2: The Site Assessment (SA) – Evaluating the Real-World Context

The Site Assessment (SA) component moves beyond the soil to evaluate a range of external factors that affect a farm’s viability. This part of the score is highly localized and subjective. A local committee of farmers, planners, and officials decides which factors matter most to their community and assigns weights to them. This is a key reason why a LESA score is a planning tool, not a lending tool; a score from one county is not comparable to another.

Common SA factors are grouped into categories:

Agricultural Viability Factors: These measure how practical it is to farm on the site. This includes the parcel size (larger farms are often more viable), proximity to support services like equipment dealers, and whether there is access to water for irrigation.
Development Pressure Factors: These gauge how likely the land is to be converted to a non-farm use. Factors include the property’s distance to a city’s edge, the zoning of adjacent properties, and the availability of public water and sewer systems. A property closer to urban infrastructure will score lower, indicating it’s more suitable for development.
Other Public Value Factors: This category allows a community to include its unique priorities. A county might assign points for a property’s scenic views, its role as wildlife habitat, or the presence of historical sites.

The final LESA score is the LE score plus the sum of all the weighted SA scores. This total score provides a comprehensive picture of the land’s importance to the community’s agricultural landscape.

The Step-by-Step LESA Calculation: A County-Level Walkthrough

Calculating a LESA score is a methodical process that turns raw data about soil and location into a final, decision-guiding number. Let’s walk through a detailed example based on the process used by counties like Story County, Iowa, and various jurisdictions in California.

Step 1: Calculate the Land Evaluation (LE) Score

This step focuses entirely on the soil. The planner uses a worksheet and official soil survey maps from the USDA-NRCS.

Identify Soil Types and Acreage: The planner first lists every soil type present on the property and the exact number of acres for each.
Determine the Proportion: For each soil type, they calculate what percentage of the total property it represents. For example, on a 100-acre farm, 20 acres of “Sorrento loam” is a proportion of 0.20.
Assign LCC and Storie Index Ratings: Using official tables, the planner finds the Land Capability Classification (LCC) point value and the Storie Index rating for each soil type. For instance, Sorrento loam, being a Class I soil, gets 100 LCC points and a Storie Index of 100.
Calculate Weighted Scores: The planner multiplies the proportion of each soil type by its LCC and Storie Index ratings.
- LCC Score: 0.20 (proportion) x 100 (LCC points) = 20.0
- Storie Index Score: 0.20 (proportion) x 100 (Storie rating) = 20.0
Sum for the Final LE Sub-Score: The planner repeats this for all soil types and adds the weighted scores. In a system like California’s, the LCC and Storie Index scores are then multiplied by their own weights (e.g., 0.25 each) to get the final LE sub-score.

Step 2: Calculate the Site Assessment (SA) Score

This step evaluates the property’s surroundings and context. The planner scores a series of locally chosen factors.

Score Each SA Factor: The planner goes through a checklist of factors, assigning points based on a predefined scale. For example:
- Project Size: A 500-acre farm might get 100 points, while a 20-acre parcel gets only 20 points.
- Surrounding Agricultural Land: If 80% of the land within a quarter-mile is also in agriculture, the site might get 80 points.
- Distance to City: If the property is more than 5 miles from a city boundary, it might get 100 points. If it’s adjacent, it might get 0.
Apply Weighting: Each factor score is then multiplied by its locally determined weight. A factor like “Surrounding Agricultural Land” might have a high weight (e.g., 0.15), while “Protected Land Resources” might have a lower weight (e.g., 0.05).
Sum for the Final SA Sub-Score: The weighted scores for all SA factors are added together to get the total SA sub-score.

Step 3: Determine the Final LESA Score and Its Meaning

The final step is simple addition.

LE Sub-Score + SA Sub-Score = Total LESA Score

This final score is then compared to a set of thresholds established by the local government to determine the significance of the land. For example, in San Diego County, a score of 80-100 is automatically considered “significant” agricultural land. A score between 40 and 59 is only considered significant if both the LE and SA sub-scores are above 20 points. This prevents land with poor soil in a very rural area from being unfairly restricted.

Real-World Scenarios: How LESA Scores Impact Landowners

The theoretical calculation of a LESA score becomes very real when it affects a landowner’s plans for their property. The score can be the deciding factor in whether a project is approved, a farm is preserved, or even how much a property is worth to a lender.

Scenario 1: The Farmer Seeking to Diversify Near a Growing Town

Maria owns a 150-acre farm with excellent Class II soils, located just outside the urban growth boundary of a rapidly expanding town. Her LESA score is very high (275 out of 300) due to the superb soil quality (high LE score) and the fact that her property is surrounded by other farms (high SA score). She wants to sell a 10-acre parcel for a small residential development to fund a new irrigation system.

Maria’s Action	The Consequence
Applies for Rezoning: Maria submits an application to the county to rezone 10 acres from “A-1 Agricultural” to “Rural Residential.”	Rezoning Denied: The county planning commission denies the request, citing the property’s LESA score of 275. County ordinance prohibits rezoning of land scoring above 267 to protect prime farmland.
Applies for a Farm Loan: Maria then applies for a loan to fund the irrigation system, using her entire 150-acre farm as collateral.	Lower Appraised Value: The lender’s appraiser determines the property’s “highest and best use” is agriculture due to the strict zoning. The appraised value is $8,000 per acre, not the $30,000 per acre the residential land next door is worth. This lower valuation limits her maximum loan amount.

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Scenario 2: The Developer and the “Less-Than-Significant” Impact

A development company, Urban Edge Inc., wants to build a business park on a 60-acre parcel in California. The land has been fallow for years. The county requires a LESA analysis as part of the California Environmental Quality Act (CEQA) review process.

The analysis finds the property has a total LESA score of 45.2. This score falls into a critical middle range. The property’s soil quality is decent, resulting in a Land Evaluation (LE) sub-score of 31.7. However, the site is adjacent to a freeway and other commercial properties, resulting in a low Site Assessment (SA) sub-score of 13.5.

The Finding	The Project Outcome
CEQA Threshold Review: The county’s rule states that a LESA score between 40 and 59 is considered a “significant impact” only if both the LE and SA sub-scores are 20 or greater.	Project Approved: Because the SA sub-score of 13.5 is below the 20-point threshold, the project’s impact on agricultural resources is officially deemed “less-than-significant.” The development is allowed to proceed.

Scenario 3: The Retiree and the Mandatory Reverse Mortgage LESA

Robert, age 72, wants to get a reverse mortgage to supplement his retirement income. He owns his home outright, but a review of his finances shows he has a limited fixed income and a history of being late on his property tax payments. This raises a red flag for the lender during the mandatory Financial Assessment.

The lender determines that Robert may not have sufficient residual income to reliably pay his future property taxes and homeowners insurance, which total $6,000 per year.

Financial Assessment Finding	The Loan Requirement
Inadequate Financial Capacity: The underwriter concludes that Robert’s income and credit history present a risk of future default on his property charge obligations.	Mandatory LESA Established: To approve the loan, the lender requires a Life Expectancy Set-Aside (LESA). They calculate an amount needed to cover his $6,000 annual charges over his projected lifespan, resulting in a $90,000 LESA being withheld from his available loan proceeds.

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How Lenders Actually Assess Your Farm and Calculate a Loan

Now we arrive at the core of the issue: if lenders don’t use a government LESA score, how do they decide if you qualify for a farm loan and how much you can borrow? The process is a comprehensive financial and operational risk assessment, anchored by a professional property appraisal that determines market value, not agricultural quality.

The Five C’s of Credit: A Lender’s Framework for Risk

Lenders evaluate agricultural loans using a time-tested framework known as the “Five C’s of Credit.” This ensures they look at the whole picture, from your personal history to the farm’s economic potential.

Character (Creditworthiness): This is about your track record. Lenders review your credit score, payment history, and overall financial reputation. For farm loans, this also includes your experience and management skill as a farmer, which is a crucial indicator of your ability to handle the ups and downs of agriculture.
Capacity (Cash Flow): This is the most important “C.” The lender analyzes your farm’s historical and projected cash flow to determine if the operation generates enough money to pay all its expenses, cover family living costs, and make the new loan payment. They will require several years of tax returns and financial statements to prove your repayment capacity.
Capital: This refers to your own financial stake in the operation. It’s your net worth or the amount of your down payment. A larger down payment (typically 25% for land purchases) reduces the lender’s risk and shows your commitment.
Collateral: These are the assets you pledge to secure the loan, primarily the land itself. If you default, the lender can sell the collateral to recoup their money. The value of this collateral is determined by a formal appraisal, which directly impacts the maximum loan amount.
Conditions: This includes the purpose of the loan (e.g., buying land, equipment, or operating capital) and the broader economic environment. Lenders consider factors like commodity prices, interest rates, and overall market trends when structuring the loan.

The Appraisal: The True Measure of Your Land’s Lending Value

The cornerstone of a farm loan is the professional property appraisal. This is not a simple scoring exercise; it is a formal, legally binding opinion of the property’s market value conducted by a state-certified general appraiser. The appraiser’s job is to answer one question: “What would a typical buyer pay for this property on the open market today?”

Appraisers use three standard approaches to determine value, often using all three to arrive at a final, defensible number.

Appraisal Method	How It Works
Sales Comparison Approach	The appraiser finds recent sales of similar farms in the area and makes adjustments for differences in size, soil quality, buildings, and water rights. This is the most common and reliable method.
Cost Approach	The appraiser estimates the cost to build all the improvements (barns, fences, house) new, subtracts for depreciation, and adds the value of the bare land. This is most useful for properties with significant buildings.
Income Approach	The appraiser analyzes the property’s ability to generate income from crop sales or rent, subtracts operating expenses, and converts the net income into a value. This is critical for income-producing farms.

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The final appraised value is then used to calculate the Loan-to-Value (LTV) ratio. Lenders have strict LTV limits, often around 75%. This means if your farm appraises for $1,000,000, the absolute maximum a lender will loan you is $750,000, regardless of your needs. The appraisal directly and mathematically limits your loan amount.

The Reverse Mortgage LESA: A Closer Look at the Calculation

The calculation for a financial Life Expectancy Set-Aside (LESA) is completely different from the government’s land-rating system. It is an actuarial formula designed to estimate the total amount of money needed to pay a borrower’s property taxes and insurance over their expected lifetime. The lender performs this calculation before the loan closes.

The key inputs are:

The Borrower’s Age: Specifically, the age of the youngest borrower or non-borrowing spouse.
Current Annual Property Charges: The total yearly cost of property taxes and homeowners insurance.
Life Expectancy Tables: The formula uses standardized life expectancy data to project how long the funds will need to last.
A Compounding Interest Rate: The formula includes a factor to account for future increases in taxes and insurance.

The basic concept is to project the total lifetime cost of these charges. For example, if a 75-year-old borrower has a life expectancy of 12 more years and annual property charges of $5,000, a simplified calculation would be 12 x $5,000 = $60,000. The actual formula is more complex, as it also accounts for the fact that the unused funds in the LESA grow over time at the same rate as the loan’s line of credit.

However, there is a significant flaw in this system. The term “Life Expectancy Set-Aside” is often a misnomer because the calculation relies on outdated life expectancy tables from 1979. Furthermore, the built-in inflation factor often fails to keep up with the real-world increases in property taxes and insurance premiums, especially in high-cost areas or regions prone to natural disasters. Once the LESA funds are depleted, the borrower is fully responsible for paying the bills again, which can lead to the very default the LESA was meant to prevent.

Mistakes to Avoid

Navigating the worlds of land valuation and lending can be tricky. Misunderstanding key concepts can lead to costly errors, denied applications, and significant frustration. Here are some common mistakes to avoid.

Mistake 1: Assuming a High LESA Score Means a High Loan Value. Many landowners believe that a high government LESA score, indicating prime farmland, will automatically lead to a high appraisal and a large loan. This is often false. A high LESA score can trigger zoning that restricts development, which can lower the market value compared to a similar property that could be sold for development.
Mistake 2: Confusing an Appraisal with a Tax Assessment. Your property’s tax assessed value is used by the county to calculate your property taxes. It is often lower than the market value and is not the same as a professional appraisal. A lender will always require a new, independent appraisal and will not use your tax assessment to determine your loan amount.
Mistake 3: Hiding Information from the Lender or Appraiser. Do not omit information about easements, leases, or environmental issues on your property. Appraisers and title companies will discover these during their due diligence. Being upfront allows these issues to be addressed early in the process rather than causing major delays or a loan denial right before closing.
Mistake 4: Forgetting About the Site Assessment (SA) Factors. When considering a property’s development potential, it’s easy to focus only on the soil quality (the LE score). However, the SA factors, like proximity to a city or adjacent zoning, are often more influential in a planning commission’s decision. A property with mediocre soil but located in a designated growth area is far more likely to be approved for development than a property with perfect soil in a protected agricultural zone.
Mistake 5: Believing a Reverse Mortgage LESA is a Lifetime Guarantee. A financial LESA is an estimate based on old data. It is not a guarantee that your taxes and insurance will be paid for the rest of your life. Borrowers must monitor their LESA balance and be prepared to resume payments if the funds run out.

Pros and Cons: USDA LESA Score vs. Professional Appraisal

For a landowner, the government’s LESA score and a lender’s professional appraisal serve very different purposes and have distinct advantages and disadvantages. Understanding this difference is key to managing your property as both an agricultural resource and a financial asset.

USDA LESA Score	Professional Appraisal
Pros	Pros
✅ Recognizes Agricultural Quality: It formally acknowledges the high quality of your soil and the suitability of your land for farming, which can be a source of pride and is useful for conservation programs.	✅ Determines Market Value: It provides a realistic, evidence-based estimate of what your property is worth in the current market, which is essential for any financial transaction.
✅ Supports Conservation Efforts: A high score can make you eligible for programs like Purchase of Agricultural Conservation Easements (PACE), where you can be paid to keep your land in farming.	✅ Required for Financing: It is the only valuation a lender will accept to determine your collateral value and calculate your maximum loan amount.
✅ Provides Planning Certainty: The LESA system and its associated zoning rules provide clear, public criteria for land-use decisions, making the development process more predictable.	✅ Considers All Potential Uses: An appraisal’s “highest and best use” analysis considers all legally permissible and financially feasible uses, including development, which can result in a much higher value.
✅ No Cost to Landowner: The LESA evaluation is typically performed by county staff as part of a public planning process at no direct cost to you.	✅ Independent and Unbiased: A certified appraiser must adhere to strict professional standards (USPAP), ensuring an objective opinion of value.
Cons	Cons
❌ Can Restrict Development: A high score can lead to zoning that severely limits or prohibits non-agricultural uses, capping your property’s potential market value.	❌ Can Ignore Agricultural Nuance: An appraisal focuses on market data. It may not fully capture the unique long-term productive potential of a well-managed farm if comparable sales don’t reflect it.
❌ Not Used by Lenders: A LESA score has no direct bearing on a loan application. You cannot take your high LESA score to a bank to ask for a larger loan.	❌ Costs Money: The borrower must pay for the appraisal, which can cost several thousand dollars for a large or complex farm property.
❌ Highly Subjective and Localized: The Site Assessment factors and weights are set by a local committee, meaning the system can vary dramatically from one county to the next.	❌ Can Be a “Snapshot in Time”: An appraisal reflects the market on a specific date. A downturn in the real estate market can lead to a lower appraised value, even if your farm’s productivity hasn’t changed.
❌ Focuses on Preservation, Not Profit: The system’s primary goal is to preserve farmland for the public good, which may not align with an individual landowner’s financial goals.	❌ The Value is Not a Guarantee: The appraised value is an opinion. It does not guarantee that you will be able to sell the property for that exact amount.

Frequently Asked Questions (FAQs)

Do agricultural lenders use a USDA LESA score to approve my farm loan?

No. Lenders do not use the government’s LESA score. They require a professional property appraisal to determine the market value of your land, which is then used to calculate the maximum loan amount.

What is the difference between the USDA LESA and the reverse mortgage LESA?

Yes, they are completely different. The USDA LESA is a government planning score for farmland quality. The reverse mortgage LESA is a required savings account to pay a borrower’s future property taxes and insurance.

Can a high USDA LESA score hurt my ability to get a loan?

Yes, indirectly. A high LESA score can lead to zoning that restricts development. This can lower the property’s appraised market value, which in turn reduces the maximum amount of money a lender will loan you.

Who calculates a USDA LESA score?

Yes, they are done by different people. A USDA LESA score is calculated by local government planning staff. A property appraisal for a loan must be done by an independent, state-certified appraiser hired by the lender.

Is there a lending tool similar to LESA?

Yes. The Agricultural Loan Evaluation System (ALES) is a risk assessment model used by some financial institutions. It helps standardize loan decisions by analyzing a farm’s financial, agricultural, and qualitative aspects to determine credit risk.