If you are considering buying or building a home in rural New York, now is a great time to do it.  As of March 19, the United States Department of Agriculture’s Rural Development Agency has increased the adjusted income limits on its guaranteed and direct-loan programs, so now residents can make more money and still qualify for government aid on mortgages for first-time home buyers. 

Interest rates are down on government-held loans through the direct-loan program, and there are more ways now to acquire the necessary capital for a down payment.  All of these programs target moderate- to low-income families, encouraging them to buy homes in rural areas.

Patrick Brennan, the state director for USDA Rural Development in New York, said in a recent release that the new income limits “have been designed to help deserving rural New Yorkers become homeowners.”

But just who is a ‘deserving’ New Yorker?   According to Susan Oliver of the Albany Country Rural Housing Alliance, it means people who have “all their ducks in a row.”

“It’s for people that have good credit, and have paid their taxes and who qualify for a loan but can’t afford the down payment,” she said.

And it’s that down payment that many Americans find to be the prohibiting factor when it comes to purchasing a house.  While many low-income families have worked hard to maintain good credit, few have $5,000 to use for their deposit. 

The USDA offers two types of assistance programs to people who wish to build or buy houses in rural areas:  The Guaranteed Loan Program targets moderate- to low-income families and individuals.  The mortgage is held by a private bank, and the government essentially co-signs, guaranteeing the loan and saving the borrower the cost of Private Mortgage Insurance.

This is insurance taken out by the bank which protects them from default on the loan.  The cost of the insurance is normally passed on to the customer, bundled with the mortgage payment.  The Guaranteed Loan Program eliminates that cost by making the government liable for default, which results in significant monthly savings for the customer. 

The Direct Loan Program is for very-low- to low-income families, which normally mean families making less than 80 percent of the mean income for the area.   The government makes the loan to the individual directly, thereby eliminating the bank altogether.  The current interest rate on a Direct Loan just dropped to 5.375 percent; it was at 6 percent in 2006, making this a more attractive time to take advantage of the program. 

Last year, the adjusted income limit for a single person considered to be in the “very low” income bracket was $23,200; this year, that has increased to $24,700.  The same “very low” bracket limit for a family of eight was $43,750 and increased this year to $46,600.  Every limit in every income bracket has increased, so you can earn more annually and still qualify for the programs.

Tim Jones, special projects coordinator for the New York Division of the USDA Rural Housing Agency, said that the income limit increases were not due to the housing recession that has been plaguing the real-estate market since 2006.  The USDA has been making these loans since the 1930s, when the Rural Development Agency was created to encourage home ownership during the Great Depression.  The income limits also increase (on average) once a year; he said this was to combat inflation. 

The USDA Rural Development Program in New York awarded 6,073 grants and loans in fiscal year 2007 and, according to the USDA Rural Development Agency’s website, most of them are made to families who make less than 80 percent of the median annual income for residents in the area in which they live.

Jones said that prospective buyers are generally encouraged to first consider the Guaranteed Loan Program, as it costs the government less money and therefore goes through the system more quickly.  Less money has to make it through the system, just enough to guarantee the customer’s loan through the bank.  With the Direct Loan Program, the government is backing the entirety of the loan and borrowers will generally find the process takes much longer.

 “Last year, we provided 397 loans through the Guaranteed Program, for a total of about $35 million.  We also provided 193 direct loans, for a total of $18.6 million…so it becomes a matter of people knowing that the service is there,” Jones said. “The biggest challenge for us is telling people about it, so they can come see us and start working with us.”

The Albany County Rural Housing Alliance helps ease the way for county residents buying houses.

Laura Fogli purchased her Westerlo three-bedroom home in 2005.  She said she would “highly recommend” the program to anyone interested in living in a rural area.

Without ACRHA, she said “I wouldn’t have been able to do it…not only were they helpful with the process itself, but they provided counseling to teach you how to clean up your credit score, recommended contractors for repairs, and made sure the contractors did what they said they were going to do.  They helped with every step along the way.”

According to Stephanie Galvin, housing counselor for the alliance, there are other hurdles as well.

“You need to have very good credit to qualify for these programs,” said Galvin.  “Not to say that it’s a bad program, but most of my clients don’t qualify in terms of credit, and there isn’t much flexibility available.”

ACRHA is a not-for-profit organization that formed in 1982 to enable and encourage low-income families to buy houses in rural areas.  It offers counseling and seminars to educate first-time homebuyers, as well as people in bad situations who are trying to avoid delinquency or foreclosure. 

The organization also helps people find federal and state monies for repairing or improving their homes.   The program works by eliminating the down payments and also by doing away with the cost of Private Mortgage Insurance.

The cost of the insurance depends upon the amount of the total value of the house and how much of that value is covered by the loan; eliminating the insurance could save the homebuyer up to several hundred dollars each month.

If prospective homeowners have insufficient credit to qualify for the USDA’s programs, there are other ways to acquire the money for the down payment, such as Individual Development Accounts.  Similar to a 401k, these are special accounts designed to enable people with low incomes to save money more rapidly by matching deposited funds.  Unlike the 401k, account holders are not penalized for early withdrawal of funds, so there is no risk for the consumers.

Although not the only bank to offer such programs, the Federal Home Loan Bank of New York was chartered by Congress in the 1930s to address affordable housing at a time when the entire country was in a severe depression, and it continues to serve that function today.  The bank’s version of the IDA is called the “First Home Club.”  Every dollar placed into the account is matched with four dollars by the bank, to a maximum of $7,500.  This allows people with very low incomes to quickly save enough money for the down payment on their first home.  In order to qualify, an individual must be a first-time homebuyer, agree to a 10- to 24-month deposit schedule, and take out a mortgage with the bank matching his funds.

The matched funds come from profits generated by the investments of member banks.  These banks are mostly local banks that are engaged in what Peter King, the bank’s Affordable Housing Officer, calls “old-time banking.” The money the bank uses to match the funds is essentially returned to the community, since participants in the First Home Club are expected to take out their mortgages with the bank from which the funds were matched.

While the Direct Loan Program is disqualified from participation, as the loan is being made directly by the government, it is possible to use both the rapid earning potential of the First Home Club as well as the Guaranteed Loan Program, thereby further reducing not only your monthly payment but also the time required to acquire the down payment.

“I know,” said Galvin, “it seems too good to be true, but it is.”