From the desk of the executive director: Connecting capital and small town home ownership

Small Towns

Home ownership increases family and community stability. When residents live in a community, they shop at local businesses, take part in community organizations, and send their children to local schools. Home ownership is also a key strategy to help low and middle income families build assets.

In many regions, rural residents benefit from more affordable housing stock. In 20 rural counties in our home state of Nebraska, more than 60 percent of houses sell for under $70,000, for instance.

Yet, limited access to traditional mortgages can keep affordable houses out of reach for residents. Fewer than one-quarter of homes sold for under $70,000 are financed with a traditional mortgage, often due to a lack of lender interest. This can translate to no viable path to home ownership for families in our communities.

For new home construction, the challenge is different. Here, housing developers face tight margins that limit new home construction even when there is a market. And, for families who want to buy new homes, traditional lenders often won’t lend the full amount because the house may appraise at less than the cost to build.

In both cases, limited access to capital through traditional mortgages becomes a barrier to home ownership. There are several ways communities are responding.

  • Local investment clubs—This model has been deployed in several Nebraska communities. The clubs are for-profit organizations whose members make a $100 monthly investment. The model is operating in communities as small as 250 people. Investment clubs stimulate new home construction by lowering the risk housing developers face by guaranteeing a quick sale.
  • Nonprofit loan funds—Community Development Financial Institutions and nonprofit loan funds are filling gaps in some communities. With a mission to serve low-income families, and the ability to be more flexible with loan terms, nonprofit loan funds can make first or second mortgages to help low-income families become home owners.
  • Public investment—Local units of government often make lots available for new construction. Local entities interested in doing more might consider tax or utility abatement incentives. Local, state, or federal partnerships could be further developed to capitalize nonprofit loan funds and expand their impact. Loan guarantee programs, such as the USDA home loan guarantee program, incent traditional lenders into the market.

We know that access to affordable, desirable housing in small towns is as important as quality jobs, schools, health care, and other cornerstones of a vibrant community.

At the Center, we are considering expanding our small business lending programs to include small town housing lending. Small dollar mortgages, down payment loans, and workforce housing mortgages are programs we may offer in the future.

Is helping families become home owners a challenge in your community? What solutions are you seeing? Get in touch to share your thoughts.