Lower Fees Make Rural Guaranteed Home Loans More Attractive

Summer is home-buying season here in Michigan, and one of the tools credit unions can use to help prospective buyers achieve their goal of homeownership is the Single Family Housing Guaranteed Home Loan program offered by the U.S. Dept. of Agriculture Rural Development.

This is one of the few programs that still offers zero-down home loans and it has recently made some important changes. Before getting into those, let’s review the basic aspects of the program.

SFH Guaranteed Home Loans are limited to low- and moderate-income households in rural areas. Eligible applicants may build, rehabilitate or improve a dwelling in an eligible rural area. The program provides a 90 percent loan note guarantee to approved lenders in order to reduce the risk of extending 100 percent loans to eligible rural homebuyers.

This would be a good place to clarify what the program defines as “rural.” Generally, this term applies to small towns and communities. Places like Lansing, Jackson, Grand Rapids, Flint and Detroit (and their suburbs) are not considered to be rural, but most of the places between them are.

All of Michigan north of Mount Pleasant counts as rural, including Traverse City, Alpena and the entire Upper Peninsula. Clearly the program has a lot of real estate to work with.

The loan funds can be used to purchase a new or existing residential property to be used as a permanent residence. Closing costs and reasonable/customary expenses associated with the purchase may be included in the transaction. Other eligible uses include repairs and rehabilitation when associated with the purchase of an existing dwelling; home refinancing; special design features or permanently installed equipment to accommodate a household member who has a physical disability; or essential household equipment such as carpeting, ovens, ranges, refrigerators, washers, dryers, heating and cooling equipment as long as the equipment is conveyed with the dwelling.

The loan is for a 30-year term and uses a fixed interest rate. There is also a one percent up-front fee for purchase and refinance transactions and a 0.35 percent annual fee based on the average scheduled unpaid principal balance of the loan for both purchase and refinance loan transactions

This brings us to the changes. Historically, the up-front fee was 2.75 percent and the annual fee was 0.5 percent. The lower costs don’t impact lenders directly, but they permit significant savings to the borrower, making the SFH Guaranteed Home Loans much more attractive and homeownership more accessible to rural residents.

For more information about this home loan program, contact the USDA Rural Development in Michigan at 517-324-5210 or rd.usda.gov/mi.

This article was written by Jason P. Church, acting state director for USDA Rural Development in Michigan.