Residents in the rural areas may appreciate homeownership more than big- city counterparts. The U.S. Department of Agriculture reports that while America overall celebrates an all-time high 67 percent homeownership rate, in rural America, it stands at a whopping 75 percent.

USDA operates the Rural Development loan and grant programs which assist seniors and lower income families with home repair financing and home loans through its Rural Housing Service programs. Formerly referred to as FmHA loans, the RHS mortgage comes in several shapes and sizes.

(For Section 502 details, press here. This information is for Idaho and gives a good overview of the programs. Check specifics for your state from the link at the end of this story.),

They share the same attributes as their more popular and widely used FHA and VA programs where they are guaranteed by a government agency. If the borrower defaults, Uncle Sam pays the lender to get out of the loan.

While USDA actually loans money through its direct loan programs, it also uses a network of 2,400 lenders for its guaranteed programs and nearly 26,000 homebuyers have used the program so far this year.

The RHS mortgages differ from their FHA/VA counterparts in that the USDA also loans money directly to homeowners through a subsidized mortgage program. Through this option, some homeowners can get loans with an interest rate as low as 1 percent.

"Our guaranteed loans would be similar to an FHA," says David Villano, deputy administrator for single family housing, "but we allow 100 percent LTV and we don't require private mortgage insurance. We have a better program than FHA, guarantee the same amount, but with no mortgage insurance," which helps the buyers arrive at a much better debt/income ratio since there is no PMI.

"Our direct program is low-income (80 percent of median) based. Some cases we partner with state FHA and get a 5 to 6 percent interest rate," Mr. Villano says. "About 30 percent of the families are 80 percent or below median income in the guarantee program."

One of the largest beneficiaries of the RHS mortgage are single mothers who made up 31.8 percent of mortgagees in 1998 (the latest figures available). USDA also reports that married couples with children make up nearly 40 percent of the home purchasers.

The loan limits are based on the Housing and Urban Development limits, which flow through a range of prices depending on where the house is located and how expensive or inexpensive the market. For high price areas, the ceiling limits range from $170,362 to $197,621. The limits in low cost areas, range from $86,317 to $109,032.

The loan limits are only one of the restrictions on use of the RHS mortgage, says Mr. Villano. He adds that there are income limits and population limits as well. "All of our assistance has to be in a rural area (town), with a population of 25,000 or less," he says.

There is a way around that population limit near larger metropolitan areas, however. Towns near New York City or Dallas, for instance would have to have a population under 10,000 before an RHS mortgage could be used there. While these loans are generally considered rural loans, Mr. Villano says buyers in commuter towns around metropolitan areas can also qualify for the program.

As far as income limits are concerned, buyers cannot make more than 115 percent of the county median income level, for the guaranteed loan program. Income limits for the direct program however, are 80 percent of median income for low income buyers and 50 percent of the median income for very-low income borrowers.

When you consider that some of the Section 502 program allows for 100 percent loan to value and 1 percent mortgage rates, you can see why it's a thriving program with plenty of room to grow. For more information about the RHS/Section 502 programs and a list of field offices around the country, potential borrowers would do best to visit the Rural Development web site. Once at this section, click the desired link for the state web site.

M. Anthony Carr is a Washington-based author who has written about real estate issues for more than a decade.

Published: June 29, 2001

Use of this article without permission is a violation of federal copyright laws.

Mr. Carr is an award-winning real estate broker in Northern Virginia and authored "Real Estate Investing Made Simple: a commonsense approach to building wealth." He also contributed to Donald Trump’s book, "The Best Real Estate Advice I Ever Received," and is an active trainer and coach of top producers in the Washington DC market. As a sought-after expert on real estate, Mr. Carr has been featured on CNN, various broadcast outlets and was the former real estate editor for The Washington Times. He accepts questions at his blog www.RealEstateOlogy.org.