I was born in a small town, educated in a small town…and that’s probably where they’ll bury me. It’s more than just the general theme to the song by John Cougar Mellencamp, I actually was born in a small town where the cows outnumbered (and may still outnumber) the people. It was a simple existence, and lacking in excitement. One year my big story for the newspaper was about a tree that fell in a storm. I mean, it was a big tree.
I think small-town living is a brilliant move for first-time home buyers who are being squeezed out of more urban markets. It’s not just about getting a house you can afford, it’s also about the other perks that go with it. This includes potentially lower mortgage rates using the USDA’s rural development lending program.
Can you save money living in a small town?
Although it’s pretty commonly understood that a home in a rural town is much cheaper than a similar home in an urban area, it’s difficult to compare the data on a town-by-town basis. Fortunately, some smart people at Iowa State University did the number crunching and determined that rural housing values are 42% lower on average than urban housing values.
It often follows that incomes in these areas are also lower, so some of that savings is offset if you must work locally, vs. bringing a telecommuting job with you. But according to the University of Minnesota’s Rural Health Research Center, there is still a significant difference in housing cost burden between rural and urban areas.
Housing cost burden, as defined by this research center, is when any household spends more than 30% of their income on housing costs, be that mortgage or rent. UMN did a five-year survey from 2017 through 2021, and found that only 25% of people in rural areas are housing-cost burdened, but 32.7% are in urban areas. So, in short, even when accounting for lower wages, rural areas are still offering cheaper housing for most people.
One last really solid indicator for the cost of living in rural areas is called the regional price parity (RPP). When looking at housing alone, in 2022 (the latest year with data), the Federal Reserve Bank of St. Louis reports that the cost of living in a rural area is 59.455% of the national average, which is pretty swell, if you think about it.
So even before you figure in other expenses, housing in rural areas is just wiping the floor with housing costs in urban areas. And, let’s face it, most people have housing as their biggest line item every month.
The advantage of rural housing for first-time home buyers
If you’ve been struggling to find a home in your favorite urban area, it might be time to look elsewhere. And by elsewhere, I mean in a rural area. There are almost certainly nice little towns full of cows and goats within a reasonable commuting distance from where you are, or you may have the option to become a telecommuter (make sure your rural town has solid internet before committing).
The nice thing about rural areas is that a lot of people don’t think to look at them for homes because they have ideas about what rural areas are, and they think that commuting 45 minutes will break their chill. There are so many hybrid jobs these days that distance is increasingly becoming just a number for people who work in a huge range of job categories.
So, by choosing a rural area, you are likely to have:
- Less competition for available homes
- Lower costs in acquiring those homes
- A much better chance of being able to buy with little to nothing down by using the USDA’s rural development programs
The USDA RD programs are income-based loan programs, but if you check with a USDA mortgage lender, you may be very surprised at how high your income can be and still qualify. I checked my own area (Greene County, Missouri) against the USDA’s income eligibility tool and found that the Housing Guarantee Loan Program will service borrowers with up to $112,450 in income and the Housing Direct Loan Program will service borrowers up to $65,200 in income.
Buying a home in a rural town may be your key to homeownership
Here’s the thing with owning a home — they don’t call it a property ladder for nothing. You have to start somewhere, and buying in a promising rural town is a path to moving anywhere you please. If you start small, with a home you can afford (especially if you can get into it with nothing down because of the fantastic programs through the USDA), you’ll be able to pay down your principal faster and gain equity smarter.
There’s no need to wait 100 years for a five-digit down payment when you can simply spend less for more house. And hey, you may find that that small town is everything you really need in the world. Choose one within reasonable driving distance to a city for accessible medical care and a trip to Costco, but just far enough away that you’re saving more than enough to make the drive now and then.
In five years, see where you are, and if living in a city is your big dream, you might just have enough equity to do so at that point.
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