With seller-funded down payment assistance programs being eliminated and the government's $7,500 tax credit to buyers having little effect on the market, some builders are "dusting off the books," as Kim Shelpman, president of Holiday Builders put it, and returning to past loan programs such as USDA rural housing and sweat equity loans.
"[These programs] are a unique way to get someone in as a buyer," Shelpman said in an interview during this week's Big Builder '08 conference, adding that projects in areas where these loans are available are moving inventory.
The move to get buyers into the USDA loan program has caused the government to step up and re-fund the program in Florida and Texas, said Natasha Cartagena with Shelter Mortgage Co. LLC. "There has been a rampant movement toward these loans."
And for good reason. There is no rhyme or reason as to where a USDA rural loan area might be, Shelpman said. "A property that used to be an orange grove in the 1950s but is now a subdivision could be eligible," she explained. Of Holiday's 40 active communities, five are eligible for USDA loans; 15 out of Highland Homes' 17 active Florida communities are eligible for the loans, and the builder is taking full advantage of the opportunity.
"This is the best kept secret [in the industry]," said David Kopec, Highland Homes vice president of sales and marketing. "There has been tremendous success for us."
Seventy percent of deals coming from Highland have used the loan program, according to Shelter Mortgage's Cartagena, but Kopec added that it is nothing new for the builder, as it has been using it for years.
The program allows eligible buyers--who do not have to be first-time home buyers--no-down-payment requirements, no private mortgage insurance, 100% financing, and a fully amortized 30-year fixed rate loan, among other benefits. Limitations for the USDA loan program, which require both the property and buyer to meet certain requirements, are determined by locality. For instance, properties must be designated by the USDA. Eligibility can be determined by visiting eligibility.sc.egov.usda.gov/eligibility/. Buyers must meet income requirements set by the state or county in which they are buying.
While the USDA loans are definitely gaining traction in the market, sweat-equity loans also are being considered by some.
Calling these loans an "out of the box method" of financing, Shelpman said her company is just starting to go through the procedures of using sweat-equity loans, and Kopec said the loans are something they would entertain in the future, but are not pushing for right now.
Sweat-equity loans allow buyers to take part in the construction of a home and then receive an end loan, with their labor's value being considered an earnest deposit.
During these challenging times, Shelpman said the industry needs to "get reacquainted with Finance 101" and look to unconventional ways to finance mortgages.
"These are programs that could be used [to get the market moving again]," Kopec said.