How does buying a house from a Community Land Trust work?
Very simply, you buy the house but you don’t buy the land. You rent the land from Madison Area Community Land Trust under a 98-year (renewable) ground lease, which provides long-term protection to the homeowner. This makes the home less expensive to purchase, because you don’t have to finance the cost of the land. And in exchange for getting a good deal on your land trust home, we ask that you pass along the deal to the next homeowner, so that the home continues to be affordable for generations to come.
How do land trust homes remain affordable over time?
A land trust home is a good deal – not just for the first buyer but for each successive buyer also. The buyer of a land trust home promises to “pass along the good deal” to the next homeowner. They do this by sharing the increase in the home’s value with the next buyer through the Resale Formula below.
What is the Resale Formula – and how does it work?
The resale formula outlines how we calculate the maximum price at which a MACLT homeowner can resell their home. Essentially, in exchange for buying a home at an affordable price, the homeowner agrees to sell the home at an affordable price. The resale formula is a way to provide our homeowners a way to capture a portion of a home’s appreciated value, while ensuring the home remains affordable for future buyers. Therefore, when you sell your land trust home, you get (a) 100% of the equity you have gained by paying down your mortgage, plus (b) 25% of the increase in the market value of your home. *(See note below)
- EXAMPLE: You buy a home from the land trust for $100,000. At that time, the house had an appraised value (i.e. market value) of $115,000. Ten years later, you want to sell the home, and now it has an appraised value of $155,000. Plugging these numbers into the resale formula, this house could be resold for (a) original purchase price ($100,000) plus (b) 25% of the increase in appraised value ($40,000 x 0.25 = $10,000) for a total resale price of $110,000.
*NOTE: The resale formula sets a maximum sale price, and does not guarantee a certain sale price. While many MACLT homes have sold at the price calculated using the resale formula, the actual sale price may vary depending on housing market conditions.
Who is eligible to buy a land trust house?
We sell our homes to homebuyers with household incomes that do not exceed certain limits set by the federal government. Specifically, your family income may not be above 80% of the area median income for Dane County, and these income limits change every year based on HUD guidelines. For more information, go to our Home Buyer Guide and view “Step 2: Do You Qualify?”
What are the costs of renting the land?
The monthly Ground Lease fee is $75 for single family homes and $50 for condos.
What are the advantages of owning a land trust house versus renting?
You get all the tax advantages of home ownership. All mortgage principal payments build your equity in your house instead of going into a landlord’s pockets. When you sell, you also get 25% of the increase in appraised value of your house. And you get to do what you want with the house — it is your home!
Should I still consider conventional homeownership?
Land trust houses are for people with modest incomes who simply cannot afford a house in the high-priced Dane County market. If you can afford to buy a house on the conventional market – go for it! You would keep 100% of the increase in the value of your house.
What is a ground lease- and how does it work?
The ground lease is a long document that describes all the rights conveyed to the homebuyer when they purchase a land trust home. It states that as a land trust homeowner, you have full use of the land for 98 years, which is renewable at the option of the homeowner for another 98 years. It also contains language to make sure that the house remains affordable to future generations of homeowners. The key element of the ground lease is that the purchaser buys the house, but not the land under the house. The land is leased from the Community Land Trust. If you ever sell your land trust home, the sale price will be based on a resale formula designed to maintain affordability for future owners. The resale formula is pretty simple — if you ever sell your land trust home, you will get (a) what you paid for the house when you bought it, plus (b) 25% of the increase in market value of your home.The Community Land Trust has a three page summary of the ground lease available. The summary has some of the legalese translated into plain English. In addition, the Community Land Trust requires that you go over the ground lease with a lawyer of your own choosing to make sure that the agreement is entered into with full understanding.
Why does the land trust sell the house but not the land under it?
Retaining ownership of the land accomplishes several goals. First, it means that the buyer does not have to finance the cost of the land when purchasing the home. Second, it ensures that the land trust will have the right to repurchase the home whenever it comes up for sale, at the resale formula price.
How do you choose a buyer?
We almost always have more interested potential buyers than we do houses. The board developed the Applicant Selection Criteria policy to select a top buyer for a property based on prioritizing qualities below:
- Lowest percent of median income:
- Number of bedrooms matches or is less than the household size
- The applicant has accessibility needs that requires the features of the property
- Current MACLT resident
- First-time Homebuyer
- First-generation Homebuyer
- Risk of displacement
- Actively seeking MACLT properties for at least six months
EQUAL HOUSING OPPORTUNITY
Madison Area Community Land Trust applies Fair Housing standards to all of our programs and services, and is committed to providing equal access to our housing.
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.