Shared Equity Programs
Shared equity programs can provide an excellent opportunity for affordable homeownership. They’re often run by government or non-profit organizations to provide first-time or low- to moderate-income buyers access to housing at prices substantially lower than otherwise available in a market.
Several types of shared equity programs are available, but they usually include a requirement that the homeowner and program sponsor “share” in a home’s appreciation in value when the owner sells the property.
How does it work?
Shared equity programs vary in design. Your lender should be able to identify programs offered in your area. They’re generally available only to home buyers below a certain income level as their focus is on making homeownership affordable.
Qualifying homebuyers who participate in a shared equity program agree to sell the property only to other income-qualified buyers, and must share the home’s appreciation with the organization that subsidized the original purchase if the homeowner decides to resell the home.
If you agree to the shared equity terms and purchase a home, you can remain in the home as long as you’d like and may even be able to pass it to your descendants.
Because shared equity programs have a stake in your success, they may require pre-approval for things like refinancing or home equity loans, and often offer counseling to help homeowners make these kinds of financial decisions. Their goal is to help their homeowners keep their home even in tough times.
Common types of shared equity programs
Community Land Trust (CLT)
Buying a home usually has two components: the house and the land on which it is built. By selling only the home and leasing the land to a homeowner at an affordable rate, CLTs significantly reduce the cost of buying a home.
Deed Restricted and Below Market Rate Homeownership Programs
These programs offer homes to buyers at a price below the market price through subsidies directly from a local government or discounted pricing by way of inclusionary housing programs.
Like other shared equity programs, a deed restriction on the property limits the resale price of the home, and in the case of affordable housing initiatives, also provides income restrictions for the resale of the property.
Limited Equity Cooperatives
Instead of purchasing land and a home, residents in limited equity cooperatives purchase shares in housing cooperatives where ownership of the property is held jointly by all members. Those shares can then be resold at an affordable rate.
To find shared equity programs in your area, talk to your lender or a housing counselor. Your lender may have other affordable financing options for you to consider as well. Always compare and shop around for the mortgage that works best for your financial situation.
Community Land Trusts and Stable Affordable Housing: www.huduser.gov
For a truly affordable home, buy into a community land trust: www.frameworkhomeownership.org
How Land Trusts Work: money.howstuffworks.com
Housing Cooperatives: A Unique Type of Home Ownership: www.investopedia.com