Most people understand what it's like to borrow money. Making monthly loan payments is a regular part of our personal budgets, whether we pay for home mortgages, new cars, home improvement projects, new business ventures or even a college education.
According to recent surveys by the Iowa Mortgage Association, Iowa banks hold $14.7 billion in mortgage loans, $1.8 billion in consumer loans and $25.6 billion in commercial loans. Loans are indeed a significant part of the American way of life.
A sometimes misunderstood and many times under utilized service offered by USDA's Rural Development agency is "guaranteed lending." Mark Reisinger, state director for USDA Rural Development in Iowa, explains that "Guaranteed lending is offered by the federal government and can improve the quality of life for people right here in rural Iowa."
What is "guaranteed lending?"
How it works is simple. A loan is made to a borrower in rural Iowa by the lender following the same basic steps as a conventional loan. The loan is then in essence "co-signed" by the federal government with Rural Development providing a payment (based on predetermined percent) of any loss the lender may have if the borrower falls short on their commitment.
There are many benefits to a guaranteed loan, says Reisinger. In many cases, guaranteeing the loan will result in a lower interest rate and improved terms for the borrower.
Communities get a new business, an essential community infrastructure, or a new homeowner who will contribute to their neighborhood. The borrower gets a loan for their home, community project, or business, when financing through a bank would have been denied in many cases.
Banks benefit along with borrowers
Banks benefit as well because guaranteed loans are marketable in the secondary market, allowing banks an increased return on their investment while providing the customer with long-term fixed rates. Banks are also able to begin relationships with new customers that can often grow into other financial dealings, such as new checking accounts, savings accounts, CD accounts, auto loans and other opportunities.
Guaranteed loans also have specific advantages for home mortgages. Along with a competitive interest rate, no down payment is required and mortgage insurance is not necessary. For first-time homeowners, a loan that provides 100% financing can be extremely beneficial. Guaranteed loans are also available for purchasing, rehabilitating or building new apartments in rural communities.
"Many lenders and borrowers are already taking advantage of the benefits of guaranteed loan programs, but we are always looking for new projects," says Reisinger. "Last year, USDA Rural Development worked with more than 130 rural lenders in Iowa to guarantee loans totaling $115 million for business development projects, community programs and housing opportunities."
Different projects use guaranteed loans
Some examples of projects that have recently used guaranteed loans from Rural Development include Thomas Rest Haven, an assisted living facility in Coon Rapids, a museum established by the Lake Mills Historical Society, along with Maple River Energy, LLC, a 5-million-gallon-per-year biodiesel production plant and 3-million-bushel-per-year soybean crush facility that is currently under construction.
In addition to the business and community aspect of guaranteed lending, more than 850 families in Iowa were able to purchase a home during the past year using a lower-interest, no-down-payment guaranteed loan.
If you are looking to buy a home, finance a community project such as a hospital or public safety facility, or expand or create new business opportunities in rural Iowa, give Reisinger's office a call. To learn more about USDA's guaranteed loans call 515-284-4663. You can also send an email to [email protected] or visit www.rurdev.usda.gov/ia.
USDA Rural Development has 11 offices in Iowa, including a State Office in Des Moines, along with Area Offices in Albia, Atlantic, Humboldt, Indianola, Iowa Falls, Le Mars, Mount Pleasant, Storm Lake, Tipton and Waverly.