The U.S. Department of Agriculture will increase its limit for home loans from $179,000 to $240,000 in North Dakota.
“What that will do will open up the $185,000, $195,000, $199,000 range that we’re not currently able to do,” said USDA Rural Development State Director Jasper Schneider.
Schneider said the loan increase was based on a market analysis. The department consulted lenders, homebuilders, mayors, developers and contractors to determine the new funding level.
The last time the loan limit was raised was 2010.
“The market of course has just gone nuts since then,” Schneider said.
The booming economy and low unemployment have led to higher material and labor costs. Low interest rates have meant people can afford to spend more on a home. All of this drives up the prices of homes, Schneider said.
USDA covered 500 home loans worth a total of $60 million in North Dakota last year. Schneider said in recent years the department has seen the dollar amount on applications continue to rise as the applications the department has been able to fund has gone down.
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“We see more and more above the loan limit,” he said.
The USDA has two types of loan programs: a direct loan program where the department lends directly and the guarantee program where the department partners with lenders to guarantee financing.
Schneider said USDA checks employment, credit history and debt to income ratio before determining whether or not to award a loan.
“They have to be able to repay the loan, especially because these are private dollars,” he said. “We’re in the business of trying to make good loans.”
Schneider said lending in rural settings always has been more complicated because slightly more high risk. He said in this economy rural homes are necessary but they’re also expensive to build.
In rural areas there are fewer options for contractors, larger lots and the infrastructure is not developed by the city. Schneider said many homes also are appraising for less than what they cost to build because the appraisals don’t take into account higher labor costs.
“This is especially true in energy impacted areas,” he said.