As published in Scotsman Guide's Residential Edition, July 2008.
While many brokers are expanding their loan originations with specialized property types, rural properties are typically not at the top of their minds. There is a government-sponsored rural-housing program, however, that can offer many benefits for brokers and their clients.
Essentially, the U.S. Department of Agriculture's (USDA) Guaranteed Rural Housing (GRH) program is dedicated to preserving rural communities. According to the USDA Rural Development office, the increased restrictions that other affordable-lending products now face do not affect GRH loans. Further, the department says, Fannie Mae and Freddie Mac have assured lenders that offer v these loans that loan-submission guidelines have not changed.
With that in mind, GRH loans can be a great addition to your product line if you understand the borrower requirements and know where to find prospects.
The GRH program offers as much as 100-percent financing for qualified, moderate-income families purchasing single-family homes in rural areas. This is an ideal opportunity for borrowers with little or no cash because they don't need a downpayment or closing funds. The loans also are available for refinancing existing USDA Rural Development loans.
Rural-housing programs are available nationally and can help borrowers who meet property-location and income-qualification requirements.
First, properties must be in a designated GRH location. Although there is no maximum loan amount, income limits generally may not exceed 115 percent of the area's median income. These limits are based on income for all adult household members, even those not listed as co-borrowers.
If your clients' income exceeds this, however, the limit may be reduced by $480 per each child age 18 or younger or each child younger than 21 who is enrolled in postsecondary education. Clients can also deduct day-care or afterschool-care expenses for children younger than 12 years old. These income deductions do not affect or lower a borrower's qualifying income.
In addition, a one-time 2-percent fee is required, but it can be financed into the loan amount, thus increasing the maximum loan to value (LTV) to 102 percent. Plus, the government-sponsored enterprises' declining-market designations do not affect the GRH loan's maximum LTV.
Lender fees, escrows, first-year insurance and third-party fees also can be financed if the property appraises for more than the sale price.
Other borrower benefits include:
Unlimited seller contributions;
Unrestricted gift funds;
Minimum FICO score of 620, though lower scores might be allowed; and
No monthly mortgage insurance required.
Brokers also should note this product's unique requirements. For example, in-ground pools are not allowed. And only new (no existing) manufactured homes are allowed.
The next step is to educate your local community and find prospects for these loans. Working with Realtors is beneficial. You can prepare informational packages for local Realtors that include county maps showing the areas that qualify for the GRH program.
Another idea is to find homes for sale in the GRH zone and provide information directly to the sellers -- especially if they are selling the home themselves.
To tap into the market effectively, you also must know which lenders offer rural-housing programs. Along with contacting the local GRH office to find lenders, do an Internet search. This will help you learn not only who offers rural-housing loan programs but also how other brokers and lenders are positioning the product to consumers.
Mark Freedle is
founder and CEO of NetMore America Inc. NetMore is primarily based west of the Mississippi River with a national focus on wholesale mortgage lending and is a nationally approved U.S. Department of Agriculture Guaranteed Rural Housing lender. Freedle has been in mortgage banking since 1996 when he founded Home Loan Center. E-mail him at firstname.lastname@example.org.