Homebuyers flock to rural subdivisions

With mortgage financing options becoming more limited, potential homeowners are availing themselves of loans offered by the United States Department of Agriculture.

They aren’t trading in their city apartments for farmland, but a nice home in the countryside has its perks.

For one, it means qualifying homeowners can receive 100 percent financing with no down payment. And the offer has been appealing to many home-seekers.

“Fifty percent of the market right now wants a zero down loan,” explained Shawn Kaplan, licensed mortgage banker with Access National Mortgage.

He said that 38 of the 78 loan applications submitted to the company in June requested financing without a down payment.

“When individuals come to us to pre-qualify for a home purchase … they begin asking what zero-down loan programs are available,” Kaplan said.

“We begin to evaluate that obviously there are less options available now than there used to be, and zero-down loan options are now tied to VA or THDA (Tennesse Housing Development Agency), which has certain income restrictions.”

Clients who aren’t veterans or do not fall in the low-to-moderate income categories can consider a Federal Housing Administration, or FHA, loan but it requires 3.5 percent down.

A final option for these qualifying individuals would be a USDA loan that has one major stipulation: the home must be in the county, rather than the city.

“They’re taking their pre-approval with the USDA loan program and going out there and searching for a property that fits their (budget),” Kaplan continued. “It is giving people incentives to go out and purchase a home in rural areas. That’s what USDA designed the program for.”

He also pointed out that mortgage rates have been averaging between 4.5 to 5 percent, which makes for low monthly payments. Additionally, USDA does not require homebuyers to purchase Private Mortgage Insurance, or insurance that pays the lender if the home is foreclosed.

In total, the savings can be quite a bit.

Kaplan figured that a $150,000 home with $0 down at 4.5 percent financing, plus county taxes and insurance could have an estimated monthly payment of $921.34. The same home with additional fees of city taxes and PMI would cost $1,049.71, or about $128 extra each month.

“People want to buy a house right now, but people are very limited on cash or don’t want to lock up their cash in a down payment,” Kaplan said, adding that homebuyers must still qualify for the loan and posses high credit scores.

“Many of my clients are getting multiple bid situations, where they’ll find a USDA property, and they’ll be the second or third offer.”

Approximately one-third of the 263 homes sold last month were outside of the city limits, according to the Multiple Listing Service, which collects home sales data.

Opportunity for homebuilders

USDA loans have proven beneficial to potential homeowners, but it could also provide opportunities for homebuilders to begin new construction again.

Kaplan suggested that homebuilders find out what loan programs are available to suit clients’ needs and build homes accordingly.

“They should go out and build more inventory where people can qualify for USDA mortgage loans,” he said.

To build new homes, companies need to hire employees and buy materials – things that help stimulate the economy.

The Associated General Contractors of America released an analysis last week showing that, nationally, the industry shed another 9,000 jobs from May to June. Residential building and specialty trade employment has dropped 1.7 percent over the past 12 months.

While USDA loan-funded home sales won’t bring the economy out of its lull, it might spur some activity.

Homeowners, builders and investors see the USDA loans as attractive, according to Steven Dotson, president of Rutherford County-based Red Realty.

In fact, Red Realty recently purchased some 15 lots in Triple Crown Farms because they qualified for USDA loans. Thirty lots are still available in the Fall Creek subdivision that the company will eventually sell to builders who want to construct homes that are USDA loan eligible.

“If I had the same subdivision at the same price, and I could put one in the county … versus the city, I’d obviously rather have the USDA option,” Dotson said. “If you’re willing to drive a little farther out of town, the county lots are a little bigger, too.”

That said, banks are still reluctant to release any funding, even for homebuilders, he continued. Right now, talks of rural development are just that – talks.

To pre-qualify or become pre-approved for USDA Rural Home Financing feel free to complete our safe and secure link 24 hours a day here:  www.Link2Approve.com 

A representative form my team will promplty follow up with your details and help you become homebuyer ready!

About the Author

Shawn Kaplan is an active, award winning, multi-state Licensed loan officer with Access National Mortgage. He has successfully helped over 2300 families achieve homeownership safely and securely.  
Email Shawn at skaplan@accessnational.com or call 615-426-3182.
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