Utah's Rural Housing
Utah’s Rural Housing Loans and Grants
- USDA Rural Housing Loans
- Rural Development Guaranteed Housing
- Rural Single Family Housing Direct Loan
- USDA Loan Summary
- USDA Rural Development Grant Assistance
- Rural Housing Repair and Rehabilitation Grants and Loans
- Housing Preservation Grants
- Rural Housing Grants Offered Through the Utah Offices of the USDA
- Utah Self Help Technical Assistance Grants
The landscape of American housing has been changing over the years. As population levels grow, we see drastic changes to rural and urban demographics. Cities have stretched their boundaries to include former farmlands, absorbing formerly rural populations. Many owners of rural property have made the switch to city life, as small American farms and a largely agrarian society has been replaced by industrialized farming and a service-focused job market. According to the Census Bureau, a gradual shift has been taking place over the last 100 years. They report that in the year 1900 39% if the American population lived in urban communities. In the 2000 census, they reported that 79% of American people now live in urban communities.
This rapid growth has changed the dynamics of our country. It has put further pressure on our environment and increased strains on local governments to provide education, health care, sanitation, security, and transportation. The University of Michigan reports that, “because governments have less revenue to spend on the basic upkeep of cities and the provision of services, cities have become areas of massive sprawl, serious environmental problems, and widespread poverty.” (Michigan)
This rapid change and the effects not only on urban communities, but also rural communities was one of the leading motivations for the creation of the United States Department of Agriculture in 1949. Since it’s creation, the department has become one of the largest governmental departments. The government understands that it’s rural communities play a vital role in the countries economy and has created the USDA to help support those living and doing business in rural America.
For those who choose to live rural lives, numerous programs and incentives are in place that encourages the development of affordable housing for existing and future rural residents. This research seeks to outline and provide information regarding several of the most popular loans and grants for investing in rural homes in the state of Utah.
Currently, there are two kinds of USDA rural housing loans available for single family households; Guaranteed Rural Housing and Direct Rural Housing loans. The most common is the Guaranteed Rural Housing loan because it allows for higher income limits and 100% financing for home purchases. The Direct Rural Housing loan is less common than the Guaranteed Rural Housing loan because they are only available to very low income families.
Though being around for over a decade now, many people including real estate professionals, still know very little about the USDA’s Rural Development Guaranteed Loan. The program had been well funded until March 10th, 2010 when the USDA announced the funding for this program would be depleted in April of 2010. Though congress could have prevented this, they allowed the funds to dry up but kept the program in place. However, since then th funds have been replenished and the program has become active again. But due to it’s recent history, many lenders hesitate to inform consumers about the loan because they’re never sure if funding is available. It is not uncommon for other USDA programs to deplete their funding, but that normally happens toward the end of the fiscal year.
The advantages of the Guaranteed Rural Housing loan are that it requires no down payment, has not maximum purchase price limit, closing costs can come from any source including gifts, repairs can be included in the loan, competitive rates, not limited to first time home buyers, and no mortgage insurance is required.
To be eligible for this loan, the borrower must occupy the property as their primary residence, provide stable and dependable income for repayment ability and the home must meet “livable” standards. This is determined by the review of the appraisal (USDA, Rural Development).
The federal government through the USDA directly funds rural Housing Direct Loans. These loans are available for very low-income households to obtain homeownership. Applicants may obtain 100% financing to purchase existing homes, purchase a site and construct a home, or purchase newly constructed homes as long as they are located in rural areas. These areas are designated by the USDA and exclude the more heavily populated areas of the Wasatch front. However, many of the areas just outside the Salt Lake and Provo metros qualify such as Eagle Mountain, Saratoga Springs and all of Tooele County.
The purpose of this loan is to make it easier for very low-income families to finance homes in the rural communities of America. Funds can be used to build, repair, renovate, relocate a home, purchase land in order to build, and develop land with water and sewage facilities.
In order to be eligible applicants must have very low-income which is defined as earning less than 50% of the area median income. 50 to 80% is considered low income, and 80 to 100% of the median income is considered moderate. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance, which are typically within 22 to 26 percent of an applicant’s income. However, payment subsidy is available to applicants to enhance repayment ability. Applicants must be unable to obtain credit elsewhere, yet have reasonable credit histories.
Under this program, housing must be modest in size, design, and cost. Modest housing is property that is considered modest for the area, does not have market value in excess of the applicable area loan limit, and does not have certain prohibited features. The home is inspected by the appraiser and reviewed by the underwriters to make sure the home meets the necessary criteria. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state. Manufactured homes must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards (USDA, Rural Development).
Currently there is available funding for these loans. However, like the Rural Development Guaranteed Loan, funding is limited and can run out prior to the end of the fiscal year.
USDA rural housing loans offer many benefits and protections that you won’t find in other loans. Loan requirements are not totally credit score driven, although it is required to have at least a 620 FICO score to obtain an approval through most lenders. The mortgage guidelines are written in a way that provides the borrower the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they’re generally going to be credit-eligible for an rural loan mortgage.
Grants provided by the USDA are available in a few different ways. Similar to the two Rural Housing loans, money is allocated each year and funding can sometimes run out. However, the USDA has been awarded $6.2 million in grant funding through the USDA’s Rural Community Development Initiative for fiscal year 2011. For the purpose of this research we will only discuss the grants associated directly with housing though other grants are provided through this program.
These grants are available for people who live in the designated rural areas and have very low incomes. The grants are intended for senior citizens who are at least 62 years old. The money from these grants are to help homeowners repair, improve, or modernize their homes or to remove health and safety hazards.
These government grants can also be used to make the home accessible for someone who has physical disabilities. The Rural Housing and Repair Grant must be used in conjunction with the government’s Repair and Rehabilitation Loan and the person who applies for the grant must be able to repay this loan. The maximum amount of the grant is $7,500.
In order to qualify for this very low-income housing repair program, applicants must have the need to improve their home safety and upgrade their homes. They also must not be able to afford to make housing repairs, or to make home safety improvements, or to remove health hazards from their homes without this financial help. They must not be able to obtain credit anywhere else and they must be in an extremely low-income bracket which is described as being 50% below the average income for the area they live in. And finally, as stated before, applicants must be 62 years of age to qualify (USDA, Rural Development).
According the USDA’s Rural Development website, the HPG program is a grant program which provides qualified public agencies, private nonprofit organizations, which may also include Faith-Based and Community Organizations, and other eligible entities grant funds to assist low-income homeowners in repairing and rehabilitating their homes in rural areas. In addition, the HPG program assists rental property owners and cooperative housing complexes in repairing and rehabilitating their units if they agree to make such units available to low- and very low-income persons. Financial assistance provided by the grantee may be in the form of a grant, loan, interest reduction on commercial loans, or other comparable assistance. However, the grants are limited to towns no larger than 20,000 residents.
The mission of Utah’s USDA’s offices are to, “Enhance the capacity of all Utah rural residents, communities and business to prosper”. They hope to achieve this through community facility and housing programs, business and sustainable cooperatives that can prosper in the global marketplace (Conine).
In addition to the previous two loans and two grants, Utah disperses an additional grant through non-profit organizations for the purpose of building homes. It is the Self Help Assistance Grant.
This grant is intended to provide financial assistance to qualified nonprofit organizations and public bodies that will aid low-income individuals and their families to build homes in rural areas by the self help method. Any private or public nonprofit corporation is eligible to apply. The grants can be used to pay salaries, rent, and office expenses of the nonprofit organization. The Grantee receives approximately $10,000 – $15,000 per home to provide the supervision and technical assistance for individual families to build their own homes.
That’s right, they must build their own homes in order to receive the funds. Families must commit to the construction of at least 65% of the home and only 35% can then be subcontracted. The families are also required to put in 30 hours per week labor but are not required to have previous construction experience. They are trained on the job and in group meetings. Typically construction is completed within 9 to 12 months. After the home is complete, families obtain their construction and permanent financing through the Rural Housing Direct loan program.
The development of decent, affordable rural housing can improve the lives of those with inadequate shelter, while at the same time benefitting the local economy. These grants and loans have proven to greatly promote this. In fact, the National Association of Home Builders found that the economic impacts that come from the development of affordable rural housing has a ripple effect that moves beyond the building-related professions to the entire local economy (Emrath). Construction workers generally live close to the construction site, and thus spend a substantial part of their wages in the local community. Area businesses benefit from this increased patronage, from the sale of building supplies for the project, and from sales to the residents of the new units. The prosperity of the owners and employees of these businesses increases, allowing them to purchase more from other local ventures, and so the ripple continues and reaches more parts of the community than those directly related to construction.