- The Washington Times - Friday, June 29, 2001

Residents in the boondocks may appreciate homeownership more than their counterparts in the city. The

U.S. Department of Agriculture reports that while America overall celebrates an all-time-high 67 percent homeownership rate, the rate in rural America stands at a whopping 75 percent.

The department operates rural-development loan and grant programs (Section 502), which assist seniors and lower-income families with home repair, financing and home loans through the Rural Housing Service programs. Formerly referred to as FmHA loans, the RHS mortgages come in several shapes and sizes.

They share the same attributes as their more popular and widely used Federal Housing Authority (FHA) and Veterans Affairs (VA) programs where they are guaranteed by a government agency. If the borrower defaults, Uncle Sam pays the lender to get out of the loan.

While the Department of Agriculture actually loans money through its direct-loan programs, it also uses a network of 2,400 lenders for its guaranteed programs, and nearly 26,000 home buyers have used the programs so far this year.

RHS mortgages differ from their FHA/VA counterparts in that the Department of Agriculture also loans money directly to homeowners through a subsidized mortgage program. Through this option, some homeowners can get loans with an interest rate as low as 1 percent.

"Our guaranteed loans would be similar to an FHA [loan]," says David Villano, deputy administrator for single-family housing, "but we allow 100 percent LTV (loan-to-value ratio) and we don't require private mortgage insurance. We have a better program than FHA, guarantee the same amount, but with no mortgage insurance," which helps buyers arrive at a much better debt-to-income ratio because there is no PMI.

"Our direct program is low-income-based (80 percent of median). [In] some cases, we partner with state FHA and get a 5 [percent] to 6 percent interest rate," Mr. Villano says. "About 30 percent of the families are 80 percent or below median income in the guarantee program."

One of the largest groups of beneficiaries of the RHS mortgage is made up of single mothers. They accounted for 31.8 percent of mortgagees in 1998 (the latest figures available). Agriculture also reports that married couples with children make up almost 40 percent of the home purchasers. The loan limits are based on the limits set by the Department of Housing and Urban Development, and they flow through a range of prices depending on where the house is located and how expensive or inexpensive the market.

For high-price areas, the ceiling limits range from $170,362 to $197,621. The limits in low-cost areas range from $86,317 to $109,032. The loan limits are only one of the restrictions on use of the RHS mortgage, Mr. Villano says. There are income limits and population limits as well.

"All of our assistance has to be in a rural area [or town] with a population of 25,000 or less," he says. There is a way around that population limit near larger metropolitan areas, however. Towns near New York City or Dallas, for instance, would have to have populations of fewer than 10,000 before an RHS mortgage could be used there.

Although those loans generally are considered rural loans, Mr. Villano says buyers in commuter towns around metropolitan areas also can qualify for the program. As far as income limits for the guaranteed loan program are concerned, buyers cannot make more than 115 percent of the county median income. Income limits for the direct program, however, are 80 percent of median income for low-income buyers and 50 percent of the median income for very-low-income borrowers.

When you consider that some of the Section 502 program allows for 100 percent LTV and 1 percent mortgage rates, you can see why it's a thriving program with plenty of room to grow.

For information about the RHS/ Section 502 programs and a list of field offices around the country, visit the Rural Development Web site (www.rurdev.usda.gov/ recd_map.html). Once atthis section, click on the desired state.

M. Anthony Carr has written about real estate issues for more than a decade. Send questions or comments by e-mail (manthonycarr@erols.com).

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