Rural home loans have long been considered one of the best-kept government secrets. That is because buyers in these rural areas get access to affordable, safe financing. Of course, these mortgages are excellent when there are very few other loan options. This is why suburbanization has such an impact on these rural areas.
What Constitutes a Rural Home Loan?
Underwriting requirements for rural home loans are reasonable and strong. A key factor is that homes that might not be eligible for loans from more conventional lenders are usually eligible under this federal program. Typically, this is because these homes are not meant for urban or suburban consumers’ needs.
The U.S. Department of Agriculture oversees the Rural Housing Service (RHS) and assesses what constitutes a rural area. However, the most recent reassessment redefined some rural regions and reclassified them as suburban, due to urban sprawl and expansion. Consequently, these formerly rural areas now have different rules and regulations for real estate transactions and financing.
Reassessments and Suburbanization
The suburbanization of formerly rural areas has a significant impact on the homes in those areas. Households that had been struggling to get financing to purchase houses now do not have access to guaranteed or direct rural home loans or any support from the RHS. These households have to try to find financing through conventional pathways. This can prevent the residents in these areas from buying houses.
The Good News
Luckily, for many of these newly classified suburban areas, their options for lenders have more than likely increased, along with the populations in those areas. Theoretically, the RHS might be less necessary in these areas; this is because the more conventional lenders move in to take advantage of the new real estate boom. Of course, all areas are different; some areas might not have the same choice of lenders.
Ultimately, suburbanization of formerly rural areas impacts the loans that are available to potential home buyers. Thus, before making any real estate buying decisions, know the property and the classification of the area.