RENEE MONTAGNE, host:
Believe it or not, it is still possible to buy a house with no money down. A small but growing number of homebuyers are turning to an obscure home loan program backed by the U.S. government. From member station KJZZ in Phoenix, Rene Gutel reports.
RENE GUTEL: When Trevor and Jessica Fuller(ph) got married, they moved in with Trevor's parents in Phoenix. It was supposed to be only temporary, but then they had a baby and one thing led to another, and soon enough four years go by, and Jessica says they were still living with the in-laws.
Ms. JESSICA FULLER: Three of us and a dog are pretty much crammed into an 11 by 12 bedroom, and it's hard.
GUTEL: With Trevor making $34,000 a year selling air conditioning parts, buying a house was out of the question. Until one day Trevor heard something about a government-backed loan program that would allow him to buy a house with no down payment.
Mr. TREVOR FULLER: I was suspicious about it, and I didn't think it was true, but my parents kept bugging me, just call, give him a call, see what he says. So I gave him a call.
GUTEL: The man he called was Mike Mets(ph), a Scottsdale mortgage banker. Mets ran Fuller's credit history and a few other numbers and then told him he likely qualified for what's called a rural development guaranteed loan, backed by the U.S. Department of Agriculture.
Mr. MIKE METS (Mortgage Banker): If you had a good job and decent credit, maybe 300 bucks in the bank, you can own a home. You can get the keys to a house.
GUTEL: The program was created in 1991 to give low-income families like the Fullers the opportunity to own a house. To qualify, you can't earn more than 115 percent of the average income in your county. The catch, if you want to call it a catch, is that the home has to be in what the USDA considers a rural area - by their definition, a town with a population of less than 25,000. And in Greater Phoenix, many of the suburbs qualify, and that's how the Fullers ended up buying a three-bedroom, two-bath house in Buckeye.
Mr. FULLER: Want to play with your plates and bowls?
GUTEL: Trevor and Jessica Fuller's 3-year-old daughter Elizabeth(ph) is playing with a Pink Princess tea set in her new bedroom. They got the house for $100,000. Three years ago, this same house sold for 188,000. Trevor is thrilled.
Mr. FULLER: Knowing that I have - right now I have a stable job, and I'm able to afford this house just on my salary alone makes me feel pretty proud about it, you know.
GUTEL: While the mortgage industry has been tanking, there's been an explosion of interest in this USDA program. Bush appointee Russell Davis is the department's outgoing program administrator.
Mr. RUSSELL DAVIS (Housing Programs Administrator, USDA Rural Development): Historically we do, say, 35,000 loans a year, and last year we did double that. And this year we'll have even much greater demand. We will have hit our legal ceiling.
GUTEL: While the USDA program is growing by leaps and bounds, not many people have heard of it. Guy Cecala has. He's the publisher of Inside Mortgage Finance, an industry newsletter. He says the program is small enough that the risk to the federal government is tiny, but Cecala does have a few concerns.
Mr. GUY CECALA (Publisher, Inside Mortgage Finance): We're still in a housing market where prices are declining. And if that is the case, does it make sense to be putting people in homes with no down payments, effectively making them underwater or upside down on their mortgage from day one?
GUTEL: The USDA contends that it's in the business of backing good, old-fashioned loans based on income, not risky loans based on inflated housing prices. Meanwhile, with the program poised to hit its ceiling before the year is out, there's talk of expanding it beyond its current annual cap by several billion dollars. For NPR News, I'm Rene Gutel.