Rhode Islanders struggling to save for a down payment on a home purchase will benefit from a $7.5 million program that will allow them to buy a home in a rural area for no money down. The Rural Housing Service of the U.S. Department of Agriculture has awarded the Rhode Island Housing and Mortgage Finance Corp. with $7.5 million to use for loan guarantees, which will allow RIHMFC to waive its normal 5 percent down payment requirement.
The program, which the housing corporation calls “Zero Down,” kicks off on Tuesday, Feb. 8. The corporation is promoting it by hosting a breakfast for Realtors at the Crowne Plaza at the Crossings in Warwick that day.
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The home buyers purchase must be in rural or suburban areas of the state. Towns such as Coventry, Tiverton, Charles-town, and Burrillville qualify as “rural” areas for this program. Those who are interested in the program must be first-time home buyers who earn no more than $55,315. The maximum price a participant may pay for a new home is $145,639; for an existing single family homes and condos it’s $120,033.
The money awarded to the corporation will allow 80 families to buy homes, said spokesman Chris Barnett. He added that he expects buyers to claim all the money by mid August.
”There are very few people who don’t want to buy a house,” Barnett said. “But there are a lot of people in Rhode Island who work hard just to make ends meet – there’s nothing left at the end of the month. ‘Zero Down’ gets them over that hurdle.”
The program will also stimulate the housing market said Ray Merolla, a Realtor associate with RE/MAX Properties in Greenville. The program allows him to call up some of his sellers who have had difficulty finding a buyer and re-list their houses, he said. And those who sell will move up to more expensive houses, typically in the $120,000 to $160,000 price range, he said.
”It does spark the housing industry tremendously,” said Merolla, who added that he has directed buyers to the Zero Down program in years past. “It allows people to move on to an upgraded home.”
With sellers moving on, the ripple effect of the program could generate another 80 to 100 sales, Barnett said.
The Rural Housing Service awards money for loan guarantees annually. Most loan guarantees issued by the federal agency are from 80 to 100 percent of the amount of the loan.
But about half the states do not use their entire appropriation, Barnett said. If they don’t use all the money, the money that’s left over goes into a national pool. The money is available from July to mid-August. States can then tap into that money on a first come, first served basis. By tapping into that pool, the corporation has been able to use even more money on loan guarantees than it is appropriated, Barnett said.
Not using all the money it is given has never been a problem for RIHMFC, he said.
”When we’re given a resource, we are going to put (it) to good use,” he said.
In fact, this year’s appropriation from Rural Housing service is several times as much as the national formula dictates that Rhode Island should be awarded, Barnett said. The increased appropriation is a reward for the agency’s past work in using the loan guarantees to help get people into their first homes. “Because we are really good at turning this money into home sales, (RHS) gave us seven times our housing allocation,” he said.
Dave Delisle, the Department of Agriculture’s rural development manager for Rhode Island, said: “This is a great program; it can be a shot in the arm to all of the home sales throughout Rhode Island. It really helps some individuals.”
Barnett noted that programs like this are particularly important because home builders today are building mostly high-end homes. A generation ago, as neighborhoods in Cranston, East Providence, and Warwick suggest, the market was in starter homes. Builders created neighborhoods of ranch homes. New affordable housing is harder to find today.
”Today the demand is in the move-up market,” he said. “Builders go where the money is, and there’s nothing wrong with that.”
