Tiffany Sebasitan, Realtor

Buying Opportunities In Nation's Rural Housing Markets

by Broderick Perkins

Forget the credit squeeze, get out of town, enjoy the fresh air, buy a home in the country.

If you've been unable to buy a metropolitan area home, take a look at rural America's neighborhoods. The commute to work could be a real trip, but it's also an opportunity to take the glass-half-full approach, slow down and work at home.

Either way, your dream home may await in a quiet pastoral setting, far from the din of city life, but a lot closer to the money to finance it.

Homebuyers who purchased homes underwritten by the USDA Rural Development Housing and Community Facilities Programsare doing far better these days than the rest of the nation when it comes to keeping a roof over head.

And that market condition is freeing up more loan money for homes in bucolic settings.

Dust Bowl in reverse

The USDA program this year posted the lowest foreclosure rates in the past 40 years, an average of 3.53 percent, down from 3.93 percent five years ago, according to an Agri Pulseinterview with Russ Davis, administrator of the USDA housing program.

Meanwhile, with millions of homeowners struggling with mortgages larger than the value of their homes, national foreclosure rates this year have skyrocketed, at times, nearly double what they were a year ago. Even with foreclosure rates leveling off, the year-over-year rate of increase nationwide remained up 25 percent in October, according to RealtyTrac.

A difference between the two markets is also reflected in the rate of homeownership. While the rate is about 67 percent in metropolitan areas, non metro areas enjoy homeownership rates averaging around 75 percent, higher in the South and Midwest, according to the Hoover Institution.

Rural homeownership is surviving because of sound lending practices and isolation -- both geographical and financial -- from the boom-bust markets.

USDA makes loans directly out of its service centers, working with 2,000 local banks and mortgage lenders to guarantee the value of the loan in case of default, enabling those institutions to sell the mortgages and not hold as much capital against each one.

To help prevent default, the loans mandate credit and homeownership counselingand, as a result, the end rate of foreclosures is actually smaller than reported. USDA loans' built-in counseling and financial relief for homeowners facing financial difficulties removes many homeowners from the foreclosure rolls.

Housing the old fashioned way

Underwriting also recognizes unique rural America characteristics -- seasonal work, shift work, changing income and migration patterns -- thanks to long-term market evaluation efforts. The out-migration that has occurred since WWII may be in for a change, given today's yen for a simpler life and a piece of owner-occupied housing pie. The trend hasn't gone unnoticed by USDA underwriters.

That saner, detailed approach to underwriting -- rather than the assembly line loans-for-all policy that failed the national housing market -- sheltered the rural housing market from "bubble" conditions that caused skyrocketing home values and the eventual crash.

The result has been more mortgage money to lend, not less. The federal ag agency's loan volume tripled in the last year, increasing from about 35,000 to 100,000 in guarantees, according to Agri Pulse's report.

Credit unionspulled off a similar coup with sound underwriting policies.

USDA's guaranteed housing loans are limited, but you don't have to grow corn or raise chickens to enjoy green acres.

The loans are for

  • People living in rural areas where the population is less than 20,000.

  • People with incomes under 115 percent of household median income for the area. In most areas, the upper income limit for borrowers will be $60,000 to $70,000 per year.

  • People buying homes, not refinancing or taking out equity loans.

USDA Programsinclude no-money down loans (imagine that), home improvement and rehabilitation loans and grants, construction loans, loans for minorities and true to the work-ethic of rural life, sweat-equity loans that require buyers to help build their own homes.

Get in before the word gets out.

Published: December 11, 2008


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