Too Much of a Good Thing?

Last month we posted an article on RD (Rural Development) home loans.  We outlined the basics and how this is a great option to consider when purchasing a home, especially when so many areas and buyers may qualify.  Unfortunately, this program may come to a sudden halt – at least for the rest of this fiscal year.

Early last week a memo from the US Department of Agriculture Rural Development alerted lenders that they anticipated funding for this year’s program to be exhausted by the end of April, 2010.  This news itself is nothing earth shattering, but the timing most certainly is.  Normally funds start to become depleted in the fall near the end of USDA’s fiscal year which ends September 30th. 

The other challenge is that there will not be any Conditional Commitments.  Typically as funds are depleted, loans are conditionally approved pending more fund allocation.  Once the department has the new fiscal year’s budget approved with new government funding those loans are fully approved and business continues as usual.  Not this year.  Since there is such a huge gap between now and the start of the next fiscal year, Conditional Commitments are just not appropriate.

So what caused this problem?  Why did the funding end so quickly?  The easiest explanation is the growing popularity of the program.  Kevin Smith, Area Director for Rural Development says, “Record demand, not only in Michigan but nationally, for the Guaranteed Rural Housing loan program will led to the full utilization of Congressionally appropriated funding at an early time frame this fiscal year.”

We too have seen a steady increase in RD loans; and our company continues to underwrite more RD loans than any other lender in the state of Michigan.  As more borrowers learn about the program with low income requirements, 100% financing options, and the vast amount of area classified as rural; demand will continue to increase. 

The next obvious question is what can be done to ease this challenge in the future?  Should more money be allocated to the program?  Should the upfront funding fee be increased like the FHA program has done?  Should this be a top subject for Congress to focus on?  Smith could not comment on policy issues of the federal government, but one thing is sure.  If you want to take advantage of this program yet this fiscal year, you need to have a signed purchase agreement as soon as possible.  There are only 6 weeks left before committed funds are anticipated to be exhausted.  Miss this window, and you may need to wait until October to get in on this program again.

Things could always change based on how the federal government reacts.  Time will tell.  In the meantime, we’ll keep watching and will let you know how this program progresses.

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4 Responses to “Too Much of a Good Thing?”

  1. Angela Says:

    Are these loans for individuals or organizations? Seems like these sorts of funding are only for non-profits, right?

    • AwarenessHomeFunding Says:

      Rural Development home loans are for individuals, these are not commercial loans. The intent is to help build up rural areas with loans for consumer who cannot afford the 20-25% downpayment requirements of a conventional loan. We have helped many clients purchase their dream home with this program. The amazing part is how many areas qualify as rural. This is not a program to help purchase land for farming, so many areas are great suburban neighborhoods just outside of major cities.

  2. Mark Stewart S. Says:

    Do you really think that the growing popularity of the program is the reason why the funds will be depleted in the next months? Maybe there is something else to it…

    • AwarenessHomeFunding Says:

      While it is not the only reason, it is a primary reason. At the start of each fiscal year a set amount of funds are allocated to this program. When the funds are gone (typically late summer – early fall) loans are given a conditional approval pending more funds being allocated. When the next year’s funding is approved, the program goes on a usual. This year the funds were ‘used’ much faster than in other years.

      More buyers are learning about this program and really liking the option it provides. Besides a VA loan, RD loans are the only other option where a buyer does not have to provide a down payment.

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