ST. LOUIS POST-DISPATCH
Sunday, Feb. 22 2009
Amid the wreckage of the mortgage business nationwide, there's still a way to get a low-interest, government-backed home loan without putting up a penny for a down payment.
The catch, if it can be called that, is the borrower's new home must be in a rural area or a town of 20,000 or fewer people. But those towns may be in the suburbs, too, meaning that parts of the St. Louis region would qualify.
The consumer-friendly financing is offered by the U.S. Department of Agriculture's Rural Development program, which was established in 1991 to keep rural areas and small towns from emptying. The goal remains, but people shut out by the rest of the home-loan industry are finding their way to the USDA's program as a way to buy a house with nothing down.
Last year, the number of applicants nationwide reached 62,933, nearly double the previous year. While many of the program's 265,000 borrowers are in the Midwest, it backs $24 billion in home loans across the country as well as in Puerto Rico and U.S. possessions in the western Pacific.
"Basically, we became the only game in town in rural areas," said Randy Griffith, who runs the Missouri loan program from his USDA office in Columbia. "We're really having a run. One of the factors in rural areas is the affordable housing availability."
The program has become so popular that its funding of $6.9 billion last year has run out. For now, a congressional resolution is allowing the USDA to make "conditional" loan commitments, said Joaquin Tremols, the program's acting director.
Whether the financial stimulus package signed last week by President Barack Obama will provide more money for the program remains unclear. Tremols said he was waiting to hear how stimulus funds will be distributed. He touts the program's advantages:
— Private lenders approved by the government issue fixed-rate 30-year mortgages. No subprime, adjustable rate funny business here.
— Families may borrow 100 percent of a new or existing home's value, including mortgage closing costs.
— Earnings guidelines apply, but applicants may borrow up to 115 percent of the median household income in the county of their desired home. In most of Missouri and Illinois, a family of four with an adjusted annual income of up to $70,750 may qualify.
The program's foreclosure rate in Missouri is 1.38 percent, which is slightly below the state's overall rate, Tremols said. All of Missouri outside the immediate St. Louis, Kansas City and Springfield areas, plus a few smaller cities, is covered by the loan program. In the St. Louis area, part of St. Charles County and much of Jefferson County and the Metro East are eligible.
"There is a lot of rural area" in the United States, Tremols noted.
That includes Marthasville, where Julie Frankenberg and her fiancé, Mike Brinker, are getting a $125,000 slice of the USDA pie. For now, they are living separately with their parents, in Washington, Mo. But they are scheduled to close March 5 on a three-bedroom, two-bath house with a two-car garage in
Marthasville, across the Missouri River from Washington.
Frankenberg, 23, said she is thrilled to be able to buy a house. "It has a big, beautiful back yard with a fence," she said.
The couple got a 4.25 percent interest rate mortgage and a good price on the one-year-old home because a job relocation forced the previous owner to sell. "We actually got a heck of a deal on it," Frankenberg said.
The couple's banker, Sherry Wahle of the Bank of Washington, said the USDA program is "the only 100 percent financing product left on the market." Bank of Washington has made most of its USDA-backed loans in Franklin and Warren counties, Wahle added.
"People get a little concerned when they hear rural development," she said. "They think country."
But when other mortgage sources vanished as the lending market crashed, more prospective home-buyers turned to the USDA to see if they were eligible. Last year, the rural program guaranteed $277 million in home loans to 3,000 Missouri households — up $80 million from the previous year. Applicants go through a normal verification process, Griffith said, and they can qualify for a loan with what the USDA refers to as a "reasonable" credit history.
Brinker, 21, and Frankenberg were looking at houses when a real estate agent told them about the USDA program. They jumped at the chance to buy a house without having to come up with a down payment.
Frankenberg said she and Brinker are eagerly anticipating moving to their new home next month and getting married in October.
"We're just really excited," she said. "We're shopping for furniture now."
tbryant@post-dispatch.com | 314-340-8206
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