Community land trusts, Habitat and other affordable homes

When home prices rise faster than paychecks, buying at market price can feel impossible. But there are other roads: homes sold below market to low- and moderate-income families, in exchange for certain rules. This guide explains three of those roads, community land trusts, Habitat for Humanity and self-help programs, with what you gain and what you accept in each one.

Of area median income: the most you can earn to qualify for Habitat in the U.S.

60%⁴

Of gross monthly income: the most Habitat lets your mortgage payment be

30%⁴

How long the land lease must run past the loan, for Fannie Mae

5 years²

Price-restricted homes: the basic idea

Fannie Mae, which buys mortgages from lenders across the country, calls these shared equity programs, or “below-market programs.” They work like this: they limit who can buy based on income and set a maximum resale price, or a formula that limits what you receive when you sell. The program lowers the price for the first buyer and “recycles” that subsidy for later buyers. In exchange for buying below market value, you accept restrictions on future sale.¹

Fannie Mae buys loans from three kinds of programs: community land trusts, programs with income and resale price restrictions, and limited equity co-ops.¹ Those restrictions can last forever or for a set number of years, bind current and future owners, and generally end if there is a foreclosureforeclosureForeclosure is the process by which the lender or servicer takes back the property after the homeowner fails to make mortgage payments. The rules and timelines depend on each state; all of them include advance notices and, in general, time to catch up or ask for an alternative, such as a repayment plan or a loan modification. If you fall behind, call your servicer and a HUD-approved housing counseling agency early: foreclosure counseling is free and exists for exactly this.See the full definitionClose or a deed in lieu of foreclosuredeed in lieu of foreclosureA deed in lieu of foreclosure is an arrangement in which you voluntarily turn over ownership of your home to the lender to avoid the foreclosure process. The lender agrees to take the house instead of the debt. It may help you avoid owing what is left on the mortgage, but in some states you could still owe the difference between the home's value and what you owe. That is why the CFPB says to make sure the deal covers the entire debt and to get any waiver of the difference in writing.See the full definitionClose.¹

Three roads to an affordable home

Buy the house, lease the land

Community land trust

• You buy the house below market
• You lease the land under a long-term lease
• The resale price and the next buyer's income are capped

You build and pay a mortgage

Habitat for Humanity

• Your income does not exceed 60% of area median income (U.S.)
• You contribute sweat equity and take classes
• Your payment stays at or below 30% of gross income at closing

You build with volunteers

Self-help (such as SHOP)

• Nonprofit organizations with HUD funding
• You contribute a lot of your own labor
• You buy below market price

All of them are local: find out which programs exist in your county and ask about requirements.

Community land trusts

A community land trust (CLT) is an organization that buys homes in its community and sells them to income-eligible families, but keeps the land. You own the house and lease the land through a long-term ground lease, at affordable monthly rents. That lease includes rules so the home stays affordable: limits on the future sales price and on the incomes of future owners.¹

What you gain and what you accept:

• You gain a home at a price you can afford, a lower monthly payment and the stability of ownership.
• You accept that, when you sell, the price is set by the land trust’s formula, usually for another qualifying family. Your home appreciationhome appreciationHome appreciation is the increase in your home's value over time. It is one of the two ways your home equity grows, equity being the difference between what the home is worth and what you owe; the other is paying down your mortgage principal. A home's value can go up or down: it can fall because of economic conditions, lack of upkeep or a drop in neighborhood home values, and some markets appreciate faster than others. The FHFA House Price Index (HPI) measures how single-family home values change.See the full definitionClose is smaller than in a market sale.

If your loan goes to Fannie Mae, the lender must review the ground lease. It must be based on an approved model (from Grounded Solutions Network or the Institute for Community Economics), or the program must be on the certified program list. The lease must limit future buyers’ incomes and the maximum sales price. Those restrictions must end automatically at foreclosure or a deed in lieu, and the lease must last at least five years beyond the loan.² Fannie Mae also will not buy these loans if the program forces you into arbitration to settle disputes, unless that clause becomes void once the loan goes to Fannie Mae.¹

Questions to ask a land trust before you buy: How much is the monthly land rent, and can it go up? How is the resale price calculated, and what happens to improvements you make? Who can I sell to, and how long does the trust have to find a buyer? Can I pass the home to my children? What happens if I fall behind on the mortgage? Write down each answer, with the date and the name of the person who gave it.

Habitat for Humanity

Habitat for Humanity is a nonprofit with local affiliates across the country. Each affiliate runs its own selection and application. Habitat says it does not give away houses: future owners partner with the local affiliate and volunteers to build or rehabilitate the home, and pay an affordable mortgage. Before owning, they complete financial education.³

Who qualifies. Besides meeting certain income requirements, you must:⁴

• Need affordable housing. For example, living in substandard housing, paying rent or a mortgage above 30% of your gross monthly income, living with mold or asthma triggers, or having a home that is inaccessible for a disability.
• Have a low or moderate income. In the U.S., household income must not exceed 60% of the area median incomearea median income (AMI)The area median income (AMI) is the median family income of an area, which HUD computes every year for each metropolitan area and county. Housing programs use it as the yardstick: under the federal rule, a family is low-income when it earns no more than 80% of its area's median income and very low-income when it earns no more than 50%, adjusted for family size. State down payment assistance programs and Section 8 vouchers publish their limits as a percentage of AMI, so the same salary can qualify in one county and not in the next.See the full definitionClose HUD sets each year.
• Be willing to partner with Habitat. That includes “sweat equity”: helping build your home or other families’ homes, taking homeowner classes or volunteering at a ReStore.
• Be able to pay an affordable mortgage. Habitat makes sure your monthly payment does not exceed 30% of your gross monthly income at closing.

Each affiliate’s committee chooses owners based on three criteria: your level of need, your willingness to partner with Habitat and your ability to repay the mortgage. Buyers invest hundreds of hours of their own labor.⁵ Selection does not take into account your race, sex, color, national origin, religion, familial status, age, marital status, disability or whether you receive public assistance. For questions, you can call 1-800-422-4828.⁴

The road to a Habitat home

1. 1. Check your area's income limit

   Today

   In the U.S., household income must not exceed 60% of area median income.⁴

   Try it with your numbersDo I qualify by income?

2. 2. Find your local Habitat affiliate

   This week

   Each affiliate runs its own application and dates.³

3. 3. Fill out the application

   When it opens

   The committee looks at your need, your willingness to partner and your ability to pay.⁵

4. 4. Put in your sweat equity

   If you are selected

   You help build, take classes or volunteer at a ReStore.⁴

5. 5. Complete financial education

   Before you own

   You learn to manage your mortgage, your finances and your savings.³

6. 6. Closing

   At the end

   Your mortgage payment does not exceed 30% of your gross monthly income at closing.⁴

Self-help programs: building with other families

In self-help programs, families build their homes with their own labor. HUD funds one of them, the Self-Help Homeownership Opportunity Program (SHOP). HUD gives grants to nonprofits with self-help housing experience, to build modest homes for low-income families who otherwise could not buy. Buyers must contribute a significant amount of their own labor to construction, with volunteer help, and the homes are sold below market price.⁷

You do not apply for SHOP funds directly: the organizations receive them, and you buy the home from them or their affiliates.⁷ If you live in a rural area, USDA has its own self-help program; our guide USDA farm labor housing and mutual self-help explains it.

Other roads you can combine

These programs are not the only doors. If you already have a Housing Choice VoucherHousing Choice Voucher (Section 8)The Housing Choice Voucher, the program almost everyone calls Section 8, is the country's largest federal rental assistance. HUD pays rental subsidies so eligible families can afford decent, safe and sanitary housing. Local public housing agencies administer it with HUD funds. The family finds its own home on the private market; if the agency approves the unit and the tenancy, it contracts with the owner to pay part of the rent, and the family pays the rest. Waiting lists are usually long and open for limited periods.See the full definitionClose (Section 8), ask your housing authority whether it offers the homeownership option. Under HUD’s rule, the authority may provide monthly payments to help with the mortgage or a single down payment grant, and it can choose whether to offer the program.⁶ Our guide Buying a home with a Section 8 voucher explains how it works.

You can also combine a price-restricted home with down payment assistancedown payment assistance (DPA)Down payment assistance (DPA) is money a public or nonprofit program contributes toward your down payment and sometimes your closing costs. Many states, local governments and nonprofits offer programs to make homeownership more affordable; most focus on low- and moderate-income families buying their first home, and some target teachers, firefighters and other public service employees. The help can be a grant you never repay, a second loan with no payments that is forgiven over the years or repaid when you sell, and many can be used with a regular FHA or conventional loan.See the full definitionClose from your state or city, if both programs’ rules allow it. Ask each program whether it accepts the other before you commit, and get the answer in writing. Many of these programs require a homebuyer education coursehomebuyer education courseA homebuyer education course is a class with a set curriculum that covers the homebuying process, how to maintain a home, budgeting and why good credit matters. It can be in a group, in person, online or by phone. It is not the same as housing counseling, which is one-on-one help with an action plan for your situation. Some loans and some down payment assistance programs require you to finish a course before closing, especially first-time homebuyers. When you finish, you get a certificate.See the full definitionClose; taking it early gets you ready for any of them.

Example with real numbers

A family comparing a land trust home with a market-price home

An example in words, not a real case, of how to think through the decision.

The purchase price

Lower with the land trust, because the trust keeps the land

The monthly payment

A lower mortgage, plus an affordable monthly rent for the land

If they sell in ten years

They sell under the land trust's formula, to another qualifying family

What they gain when they sell

Less than in a market sale, but with a sustainable payment while they live there

What they decide

Get the formula in writing and review it with a counselor before signing

The rules in this example come from Fannie Mae.¹¹ Use the income limits tool to see whether your household qualifies in your county.

Run it with your numbersDo I qualify by income?

If this is you

Your income is low and rent eats your paycheck

Paying more than 30% of your income in rent is one of the needs Habitat looks at.⁴

Your family can contribute labor

In Habitat and self-help programs, your work counts as part of the path.⁷

You were offered a land trust home

Ask for the ground lease and the resale formula in writing.¹

Your current home is not accessible for your disability

Habitat counts an inaccessible home as a housing need.⁴

You already own a price-restricted home and want to sell

Review the formula and restrictions; they also bind the next owner.¹

You prefer to read in Spanish

Habitat's page has a Spanish version; you can also call 1-800-422-4828.⁴

Mistakes that cost you

• Mistake: Thinking Habitat gives away houses.

  Instead: You pay an affordable mortgage, contribute work and take classes.³

• Mistake: Signing the land lease without reading it.

  Instead: Get the resale formula in writing and review it with a counselor.¹

• Mistake: Expecting to sell a price-restricted home at market price.

  Instead: You accepted a capped resale price in exchange for the low purchase price.¹

• Mistake: Not checking your income against your area's limit.

  Instead: For Habitat, household income must not exceed 60% of area median income.⁴

• Mistake: Accepting a mandatory arbitration clause without asking.

  Instead: Fannie Mae will not buy these loans if arbitration stays mandatory once the loan goes to Fannie Mae.¹

• Mistake: Waiting to be called without applying.

  Instead: Every program is local; find your area's office and ask when applications open.³

What to do this week

1. Check your county’s area median income with the income limits tool.⁴
2. Find your area’s Habitat affiliate and ask when applications open.³
3. Ask your city or county whether there are community land trusts or price-restricted homes.¹
4. If you are offered a price-restricted home, ask for the resale formula and the ground lease in writing.²
5. Make an appointment with a HUD-approved housing counselor; our guide HUD-approved housing counselors explains how to find one.
6. Also read Down payment assistance: how it works and take a homebuyer education course.