USDA raises home loan limit

USDA Rural Development announced Wednesday the USDA home loan limit in all North Dakota counties will increase from $179,000 to $240,000, effective May 1.

One of the federal agencies within the mission area of USDA Rural Development is the Rural Housing Service. Jasper Schneider, USDA Rural Development state director, said they have a long history of running housing programs in North Dakota, primarily in rural areas.

“Being from North Dakota, we define rural probably differently than how USDA does. We can do a home loan in communities up to 20,000 in population,” Schneider said. “So basically any community outside of Minot, Bismarck, Fargo and Grand Forks.”

There are two different types of home loan programs for single-family homes – direct and guaranteed loans.

In the direct loan program, USDA Rural Development is the direct lender itself, working directly with the borrower. Schneider said the direct loan is a good program to work with for people who might not be able to qualify for a more traditional loan.

“We work with low- and moderate-income individuals and provide up to 100 percent financing, low interest rates – currently they’re at 3.125 percent,” Schneider said. “It’s really people that have difficulty securing traditional financing and use our programs to be able to realize the dream of home ownership in rural areas where traditional financing isn’t realistic.”

In the guaranteed program, USDA guarantees up to 100 percent of the financing and 90 percent of the risk for a private lender, such as a bank. Schneider said local lenders enjoy the program because they’re able to do the loan and put it on the books, but USDA takes on 90 percent of the risk in case the loan is defaulted on.

“It’s a good deal for banks, because they get to do the loan, they get to process it, they get to put it on their books, but shift 90 percent of the risk to USDA,” Schneider said. “It’s a good deal for them and it’s kind of a win-win because our goal is to get people into homes.”

Schneider said cumulatively between the two loan programs, USDA financed about 500 homes last year to the tune of around $60 million.

“So we do a lot of housing,” Schneider said.

For more information on the rural loan programs, call the USDA Rural Development office in Minot at 852-1754, ext. 4.

Schneider said housing costs have been booming right along with the economy. This includes the cost of materials because of the hot economy and the cost of wages because of low unemployment.

“So all of that drives up the cost of a home,” Schneider said. “Low interest rates drive up the cost of a home, lack of workers, everything cumulatively has driven up the price dramatically.”

Schneider said when he started at USDA in 2009, the statewide home loan limit was $147,000. In 2010 it was raised statewide to $179,000, which is where it is currently at. After doing a market analysis and seeing just how much more expensive homes have become, especially in the oil boom areas in and around the Bakken Formation, it was decided to raise the limit once again to $240,000.

Schneider said they worked with Sen. Heidi Heitkamp, D-N.D., to raise the limit.

“We’re hopeful that with this federal housing option, (while) it’s not the total solution to all of the housing shortages across the state, it can be part of the solution,” Schneider said.

While the $179,000 limit worked well enough to allow USDA to finance 500 homes in North Dakota last year, Schneider said it’s simply not enough anymore. He said the new limit will allow USDA to finance homes in the newly-emerging sweet spot of $184,000 to $194,000, and up to $240,000 if need be.

Schneider said the two loan programs have become increasingly popular over the years as people who wish to move away from the hustle and bustle of a larger city are more able to afford a rural home with help from USDA.

The increase has come through a combination of USDA making the programs more flexible through the increased loan limits and the general promotion of them. He said the $60 million they did in home loans last year was a historic amount. Schneider expects that number to go up in the coming years, as well, simply because market values for homes should also continue to climb.

While rural living will always have its peculiar challenges compared to living in a city, Schneider doesn’t want securing a home loan to be one of them.

“We’re committed to the future of rural America, and lending in rural settings has always been historically more challenging because there’s more risk. There’s not as many people here, finding comps is difficult, there’s appraisal gaps,” Schneider said. “We know if we’re going to have a rural America, if we’re going to have a workforce for agriculture, for ranching, for energy development, you need people living and working in rural communities. So access to a quality, safe, affordable home is part of our mission.”