Affordable Housing - why is it hard to finance a $30,000 home?

One of the strengths of my chosen rural community - Morgan County, Georgia - is that we offer a high quality of life with an economically diverse population.  There are not many "executive pay" jobs within a 30 minute commute, and we have struggled to keep home costs within reach for the typical family.  As we face an aging population, many of whom have had savings depleted during the recent economic downturn, creating affordable housing solutions for moderate and lower income seniors will be a daunting task.

This recent blog highlights an Auburn University project that focused on "building" a small but functional senior-appropriate home, and points out the difficulty in obtaining financing for homes under $50,000.

Its helpful to understand WHY its difficult to get a loan under $50K.

As we know from our HUDS and truth in lending statements, there is a difference between the Interest Rate and the APR.  The APR bundles in closing costs as part of the effective Interest Rate Cost, and restates the Effective Interest Rate.

On most loans, those added fees are miniscule compared to the interest paid over the life of the loan, so there is an increase, but its not huge.

The "fixed costs" of closing in my state of Georgia, while not huge (under $1000 for most closings, plus title insurance), when added to the comparatively low interest costs of a small loan make the APR leap into the stratosphere.

When lenders show high APRs, the loan are subject to more intense scrutiny under Predatory Lending regulations.  So my local lenders avoid them like the plague.

Its also true that the work of making a loan, just like the work of helping a buyer buy a home, is not terribly more or less for a low priced property compared to a higher priced property - but the way compensation is structured in real estate sales and lending generally means that higher priced properties create higher earnings for the professionals providing the service.

So providing affordable home ownership involves creative solutions for more than construction and land costs.

I think solutions might be found in the programs created for community-based micro lending.  Perhaps attorneys and real estate professionals could provide limited pro-bono services, or maybe we need non-profits dedicated to serving this market.

However we do it, its safe to say that stable communities are good for all of us.