We’ve sold a lot of homes at Madison Area Community Land Trust and we will make sure you have the resources you need to walk through the home-buying process with ease. Be sure to review the steps below to get familiar with the process:
Step 1: Understanding the Community Land Trust Model
Community Land Trusts are founded on three basic principles: (1) when the community owns the land, the community controls its own destiny; (2) removing the cost of purchasing land makes homeownership much more affordable; and (3) we need to think in the long-term when it comes to affordable housing issues.
Like most community land trusts, the Madison Area Community Land Trust (MACLT) is a community-based nonprofit organization that was established to own land on behalf of the community, which we use to provide homeownership opportunities to people who otherwise would not be able to buy a home. (We also own land in order to protect greenspaces and promote urban agriculture in partnership with Rooted, Inc.)
When you buy a home from the Madison Area Community Land Trust, you only have to cover the cost of purchasing the house itself. And instead of having to purchase the land under your home (which can cost anywhere from $30,000 to $100,000!), you rent it from us under a 98-year renewable ground lease. In terms of your day-to-day experience, owning a land trust house doesn’t feel any different than owning any other type of house — except that your mortgage payment will be a whole lot lower.
One other thing makes us very different from other organizations — when we build or renovate a home, we aren’t just thinking about the first homeowner — we’re thinking about the 7th homeowner. Which means that when we want our homes to be affordable not only for the first buyer, but for all subsequent buyers. This is the reason that we have established our resale formula, which makes sure that the resale prices of our homes don’t increase faster than wages. If folks earning 80% of Dane County median income are going to be able to afford our homes in the year 2050, then the only way that will work is through our resale formula — which we’ll explain in great length later in the Homebuying Guide.
In a nutshell, when you buy a home from the Madison Area Community Land Trust, you:
- Purchase the house but not the land (this lowers your purchase price).
- Lease the land from the land trust under a 98-year renewable ground lease — which is as close to forever as we can make it.
- Buy your house at a below-market-rate price — and in return, if you ever sell your land trust home, you agree to sell your home to another income-eligible household at a below-market-rate price. The resale formula, which governs the resale price, is pretty simple: you get (a) what you paid for the home, plus (b) 25% of the increase in market value.
- Can stay in your home as long as you live — and you can pass it along to your children or anyone else you choose. Or you can resell and get back the equity you put in, plus some on top.
Links
Step 2: Do You Qualify?
To purchase a home from the Madison Area Community Land Trust, you must meet the following criteria:
-You are able obtain a mortgage to cover the purchase of your home.
-Your total household income (adjusted for family size) cannot exceed 80% of Dane County Median Income (see table below).
-Some opportunities may have additional eligibility requirements including but not limited to household liquid asset limits, and first-time homebuyer status. You may have to attend a First-time Homebuyer Class or a Credit Coaching Class. You may also wish to review this CLT Homebuyer Education Module. You should first fill our our pre-application and send it to admin@maclt.org to begin the process!
2020 Maximum household gross income limit (80% Dane County Median):
|
Household Size |
Income Limit |
|
1 |
$54,950 |
|
2 |
$62,800 |
|
3 |
$70,650 |
|
4 |
$78,500 |
|
5 |
$81,550 |
|
6 |
$84,800 |
|
7 |
$91,100 |
|
8 |
$103,650 |
Step 3: Homebuyer Orientation Session
Now that you understand the Community Land Trust model — and believe that you meet our basic qualifications to purchase a home — then it is time to talk with land trust staff.
And don’t worry if you haven’t figured everything out yet — part of what we do is help you clarify your goals for homeownership. Maybe a land trust house is best for you. Maybe some other type of housing best fits your needs. And even if you may not be qualified to obtain a mortgage today — we will work with you over time on a plan to move you toward homeownership.
Now it’s time to contact the Madison Area CLT to set up an orientation meeting, where we can give you a more detailed overview of the Madison Area Community Land Trust, how our homeownership program works, and what homes we currently have for sale.
Contact us to set up a meeting.
Step 4: Getting a Mortgage Loan
GETTING A LOAN: In order to purchase a land trust home, you must qualify for a mortgage loan from a residential lender. There are many different types of mortgages — in our experience, long-term fixed-rate mortgages have worked best for our homebuyers.
CHOOSING A LENDER: You are welcome to work with any established lender who is willing to issue a loan for a MACLT home. Our staff can offer recommendations for lenders who are familiar with CLT mortgages.
WHAT TYPE OF MORTGAGE IS RIGHT FOR YOU? As we mentioned above, long-term fixed-rate mortgages tend to work best for our homebuyers. Other options, such as adjustable rate mortgages, interest-only mortgages, and 80/20 mortgages are available — we have just found that they are generally not a good match to our homebuyers. Most important is finding a lender who you trust, who can give you sound advice on the type of mortgage that is best for you.
HOW BIG A LOAN CAN I AFFORD? Really, the issue is how big a monthly housing payment you can afford. Your monthly housing payment is made up of your mortgage principle and interest, property taxes, insurance, and ground lease fee. Your lender will be looking at how large a monthly housing payment you can afford given your household income and other long-term debts.
DOWN PAYMENT: No matter how you slice it, you should expect to come up with some amount of a down payment for the purchase of a land trust home. The minimum required downpayment is in the range 1-3% of the purchase price, depending on the loan program.
DOWN PAYMENT ASSISTANCE: Many of our homebuyers qualify for down payment assistance from a variety of sources. Each program has its own qualification requirements and restrictions. Our past buyers have qualified for anywhere between $0-15,000 of down payment assistance. Community land trust staff will be happy to talk to you about how you can access these programs.
MORTGAGE CALCULATORS: Mortgage calculators are a great tool for you to use to get a sense of how big a mortgage you can afford. Most banks and credit unions have easy-to-use calculators right on their websites. Click here to visit one example of a mortgage calculator.
Step 5: Offer to Purchase
An offer to purchase is a legal document describing, in specific language, the terms under which you want to purchase a home. This includes the purchase price, the date by which you want to complete the purchase, your desired mortgage interest rate and terms, whether you want to have the home inspected prior to purchase, etc.
PRE-APPROVAL LETTER: Before you make an offer to purchase, we will need you to obtain a “pre-approval” letter from one of our lenders (for more information about working with a lender, see Step 4 ). This letter verifies that a lender has reviewed your credit score, income and assets, and has determined that as long as you have accurately disclosed your income, assets and debts, you would qualify for a mortgage loan to purchase a land trust house. [NOTE: This is not a formal loan commitment from your lender — that comes later after we have accepted your offer to purchase.]
PUTTING TOGETHER YOUR OFFER TO PURCHASE: When you purchase a home from the land trust, you should work with your lawyer to write an offer to purchase including the different terms and conditions that work for you. MACLT staff can communicate with you and your lawyer about the requirements that need to be in the Offer to Purchase from the community land trust side.
Links
Step 6: Meeting with an attorney
Despite our best efforts — there is still quite a lot of paperwork involved in purchasing a community land trust house. There is the ground lease, which governs the rental of the land to the homeowner. There are loan documents, which explain the financing terms and can be lengthy and difficult to understand. There are closing documents, such as the deed, which gives the buyer title to the house. Because of the volume and complexity of these documents, we have always required our homebuyers to retain an attorney prior to closing to review these documents and answer any questions that they might have. MACLT staff can give recommendations on lawyers who are familiar with our paperwork and process.
Step 7: The closing
The closing is where the buyer and seller sign all the papers that ensure that you legally and officially own the house. This is a very, very exciting thing.
A community land trust closing is similar to other closings in many respects. The main difference is that, in addition to all the loan documents and deeds, a land trust closing involves signing a document called the ground lease. The ground lease is a 30-plus page document which spells out the terms of the lease between you and the land trust.
Links
- Ground Lease (pdf)
- Outline of Ground Lease (pdf)