If you are from a major metropolitan area, you probably have never heard of Rural Development. This is a government-insured home loan program designed for lower density, more rural areas, like all of Northwest Michigan. In such areas, where incomes tend to be lower, comparables harder to find, and financing is more difficult to get, RD fills a huge need. It is the dominant loan program, at least here in the Traverse City area. Rural Development acts as insurer for mortgage loans made by local lenders. But that looks like it is going to change soon.
According to a memo issued by the Traverse City office of Rural Development, lenders in the area have been advised"
"that program funding for the Single Family Housing Guaranteed Loan Program will likely be exhausted by the end of April, 2010.
Once funding is exhausted, the Agency will not issue Conditional Commitments "subject to receipt of appropriated funds." This is because it is not certain when additional funding will be available.
Limited funding may become available for disaster areas declared in 2008, or in disaster areas declared for Hurricanes Katrina and Rita. Limited funding may also become available as prior Agency commitments are de-obligated, however, such funding will be very limited. "
The impact on the housing market and lending market is likely to be profound. Rural Development offers the only Zero Down Payment program available, and allows for loans up to 102% of purchase price, so buyers can roll their closing costs into their loans. Absent this program, the next most accessible program is the FHA loan, which requires a 3.5% down payment from the buyers. This may not seem to be an onerous requirement, but in an area hard hit by job loss and declining incomes, it does pose some serious issues. Many prospective homeowners rely on the zero down program available through Rural Development, simply because they don't have the $3500 needed for a $100,000 purchase. Whether buyers without adequate reserves should even be buying a home is beyond the scope of this blog. But it is safe to say that, absent the RD program, buyers will have to change the way they plan to purchase a home. It will require more disciplined savings, and could move their target purchase date out several months or more to realize the needed down payment.
What does that mean to you and me? If you're a seller, you'll likely find that demand for homes drops as fewer buyers qualify for mortgage loans. If you're a buyer, you'll likely need to start saving in earnest in order to get that mortgage you need. What effects this will have on our local market remain to be seen, but I fear that our tenuous recovery may be reversed.
So, if you are buying or selling a home in the Traverse City area, give me a call, and let's talk about it today.
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