Some low-interest home loans from the federal government could soon disappear for buyers in Smithfield and Clayton.
The U.S. Department of Agriculture offers a number of rural housing programs, including guaranteed loans and direct loans. These help lower-income people in rural communities buy houses by offering small down payments and low interest rates.
But according to the 2010 census, Smithfield and Clayton are no longer rural. That means people buying homes in those towns could soon be cut off from USDA mortgages.
The good news for those buyers is that Congress has postponed applying 2010 census data to USDA loan programs multiple times. Originally, the new census data was supposed to apply on Oct. 1, 2012. But Congress keeps kicking the can, delaying action because it can’t reach a compromise.
Under USDA rules, rural communities in urban areas are those with fewer than 10,000 people. The 2010 census put Smithfield’s population at 11,000. Clayton was even larger, with about 16,000 people.
Losing the USA loans “would be catastrophic,” said Tammy Register, a broker and real-estate agent with Hometown Realty in Clayton.
Without the loans, buyers would face larger down payments that they might not be able to afford, Register said. “They would have to rent,” she said. “They would have to wait.”
First-time buyers especially don’t have a lot of money in savings, Register said. “They would not be able to say they have the joy of homeownership,” she said.
Register said she could understand Clayton no longer being rural, but it doesn’t make sense to exclude Smithfield.
The USDA doesn’t break down numbers by towns, but in Johnston County last year, the USDA issued 658 guaranteed loans for about $100 million. It issued 11 direct loans for about $500,000.
Smithfield and Clayton are among about 30 communities in the state that could lose their rural status, said Delane Johnson, public information specialist with USDA Rural Development in North Carolina.
About 920 communities across the country would lose that status, said Will Kenney, director of the state’s Rural Housing Service for single-family homes.
For now, his office is waiting on the federal government but will try to help communities transition if they do lose the loans. “At this point, we’re still just waiting to get additional guidance,” he said.
Eleanor Thorne, a mortgage lender with River Community Bank, works with first-time home buyers in Johnston County and Eastern North Carolina.
Thorne said losing the loans would also hurt current homeowners. If current homeowners tried to sell, not as many people would be able to afford their homes, she said.
Plus, “people will simply move outside of that footprint, making those homes that are right outside of Clayton and Smithfield even more attractive,” she said. That could hurt the value of houses within town limits.
Steve Biggs, Clayton’s town manager, said losing the home loans would put Clayton at a disadvantage. “We think we have a lot to offer, and it should be a level playing field,” he said.
Biggs said the definition of rural is outdated. “There’s been a degree of growth over the last 20 or 30 years, and certainly Clayton is not urban in the context of Cary or Raleigh or someplace like that,” he said. “What we think needs to happen is the standard needs to be updated. It needs to be adjusted to current-day conditions. It would need to be at an absolute minimum 20,000.”