Connecting capital and small town home ownership

By Brian Depew - Center for Rural Affairs

Home ownership increases family and community stability and is a key strategy to help low- and middle-income families build assets. In many regions, rural residents benefit from more affordable housing stock.

Yet, limited access to traditional mortgages can keep affordable houses out of reach. Fewer than one-quarter of homes sold for under $70,000 are financed with a traditional mortgage, often due to a lack of lender interest. This can translate to no viable path to home ownership for families in our communities.

For new home construction, the challenge is different. Housing developers face tight margins that limit new construction. For families who want to buy new homes, traditional lenders often won’t lend the full amount because the house may appraise at less than the cost to build.

Communities are responding in several ways.

• Local investment clubs are for-profit organizations whose members make a monthly investment. They stimulate new home construction by lowering the risk housing developers face by guaranteeing a quick sale.

• Nonprofit loan funds are filling gaps in some communities. With a mission to serve low-income families, and the ability to be more flexible with loan terms, they can make first or second mortgages to help families become homeowners.

• Local units of government often make lots available for new construction or might consider tax or utility abatement incentives. Partnerships could capitalize nonprofit loan funds and expand their impact. Loan guarantee programs incent traditional lenders into the market.

Access to affordable, desirable housing in small towns is as important as quality jobs, schools, health care, and other cornerstones of a vibrant community.

Established in 1973, the Center for Rural Affairs is a private, non-profit organization working to strengthen small businesses, family farms and ranches, and rural communities through action oriented programs addressing social, economic, and environmental issues.

By Brian Depew

Center for Rural Affairs