Program for rural homebuyers has nearly been drained dry

MINNEAPOLIS – A federal loan program that has helped hundreds of thousands of Americans buy homes in rural areas is about to run out of money, potentially crippling the real estate market in many small communities.

Since last fall, the loans from the Department of Agriculture have fueled much of the real estate business in some parts of the country. Real estate agents are pleading with Congress to find a way to keep the money flowing until more funding becomes available later in the year.

The program has doubled in size thanks to stimulus money, but now it appears to be a victim of its own success, largely because of the generous terms offered to borrowers.

The USDA’s Rural Development program provides 30-year fixed-rate mortgages at market rates. Buyers do not have to put any money down, unlike loans from the better known Federal Housing Administration, which requires a down payment of 3.5 percent. And unlike FHA loans, there are no monthly mortgage insurance premiums in the USDA program.

The program aims to help often-struggling rural communities by assisting homebuyers who might otherwise move to bigger cities.

The loans are offered through local lenders, and the approval process is usually fast. To be eligible, people must be in communities with fewer than 20,000 residents and live outside metropolitan areas.

Federal stimulus money has helped the program offer many more mortgages than in the past. In the current fiscal year, the amount of loans available climbed from $6 billion to $12 billion. Nearly 116,000 loans were financed in the 2009 fiscal year. That’s more than double the number in the previous year.

But even with its funding doubled, the program is expected to run out of money later this month, said Jay Fletcher, an agency spokesman.

That’s alarmed the National Association of Realtors, which is pressuring Congress to continue the program until the end of the fiscal year, Sept. 30, after which the Obama administration has proposed making another $12 billion in loans available.