Home Buyer Guide

Photo of Camino del Sol home

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 other member of your household, so long as they are below the income requirements. Or you can resell and get back the equity you put in, plus some on top.

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Step 2: Do You Qualify? Send a pre-application!

To purchase a home from the Madison Area Community Land Trust, you must meet the following criteria.

ELIGIBILITY CRITERIA FOR MACLT HOMEOWNERSHIP

  • Household income must be below 80% county median income (see table below)
  • Submit a program pre-application to determine eligibility
  • Attend an MACLT orientation with staff
  • Be pre-approved for a mortgage at the value of the house available, with necessary down-payment or down-payment assistance
  • Attend a homeowner education workshop (completion certificate valid for 18 months)
  • For new homes just being developed in the land trust, additional eligibility criteria may apply based on funder requirements.

You should first fill out our MACLT Pre-application (also available in Spanish and Hmong) and send it to housing@maclt.org to begin the process! Pre-applications should be submitted as soon as possible. All other eligibility criteria do not need to be met in any order; however, all must be met before a prospective buyer can close on a CLT home.

2022 Maximum household gross (before taxes) income limit (80% Dane County Median):

Household Size

Income Limit

1

$62,600

2

$71,550

3

$80,500

4

$89,400

5

$96,600

6

$103,750

7

$110,900

8

$118,050

 

Step 3: Orientation AND First-time Homebuyer course

Now that you understand the Community Land Trust model — and believe that you meet our basic qualifications to purchase a home — then it’s time to attend an orientation meeting, where we can give you a more detailed overview of the Madison Area Community Land Trust and how our homeownership program works.

MACLT ORIENTATION

Sign up for our interest list to hear about the next MACLT orientations. You may also wish to review this CLT Homebuyer Education Module

FIRST-TIME HOMEBUYER EDUCATION

If you would like to continue to pursue ownership of a MACLT home, you should additionally attend a HUD Certified First-time Homebuyer Education Course. Homebuyers Round Table offers courses here. For more information on free access to online courses we accept, please contact staff.

Step 4: Getting Pre-Approved for a Mortgage

MACLT requires that potential home-buyers be pre-approved for a mortgage to be qualified to work with our partnered realtor to buy a specific available MACLT home (see the Applicant Selection Criteria ).

WHAT IS A PRE-APPROVAL?
A mortgage pre-approval is a process you undertake with your lender looking at your credit history, income, assets, and debts, to determine how much you can afford to pay for a mortgage. If you are seriously considering buying any home, getting a mortgage pre-approval is a good idea to know what kinds of homes you should look for. Keep in mind that a mortgage pre-approval letter is only valid for 90 days, but can be renewed with another meeting if you need to renew it when an MACLT home is available. Because CLT mortgages are a bit different than regular mortgages, you may want to work with one of our partnered lenders for the pre-approval (though not required at this stage):

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. Mortgage calculators are a great tool for you to use to get a sense of how big a mortgage you can afford before you meet with a lender. 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: Touring the house

When a house is available through MACLT, we will notify our interest list to tour the house. There will be an initial 7-day showing period (which may include an open house). During this period, showings will be conducted with any interested homebuyers. Within one week of the end of the initial showing period, each interested homebuyer must provide MACLT staff with a pre-approval letter from a lender and an MACLT pre-application.

HOW ARE APPLICANTS PRIORITIZED?

MACLT has a limited number of homes available, and we want to make sure our homes serve a social purpose, so we have created a point system for finding a top buyer for a given house. For additional details on how applicants are prioritized in our program when we do not have enough houses for every applicant to buy one, see the Applicant Selection Criteria policy passed in 2020 by the MACLT board of directors. Once the interested buyer with the most points is notified, they must submit a full program application with all information verifying income and asset requirements of our program. When eligibility is confirmed with this documentation, they will move on to work with a lender to apply for a mortgage, and our partnered realtor to make an offer to purchase on the home.

Step 6: 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. Most important is working with a loan officer who you trust, who can give you sound advice on the type of mortgage that is best for you.

CHOOSING A LENDER: Because CLT mortgages are a bit more complex than regular mortgages, you will need to work with a lender who MACLT has an established relationship with.

The lenders below currently offer CLT mortgages:

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.

Step 7: 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 8: 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.

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