What is “affordable” when it comes to homeownership?
North Star Neighbors is committed to ensuring the costs of homeownership will be affordable to our buyers. Mortgage payments (including taxes, insurance, and the monthly ground lease fee) will need to be less than 30% of a household’s gross monthly income in order for them to qualify to purchase an NSN home, with an ideal ratio closer to 25% of monthly income. NSN will also look to add homes to its portfolio that do not need major improvements (siding, shingles, HVAC replacement, etc.) in the near future, reducing the homeowner’s financial burden in maintaining their home.
MYTH #1: CLT Homeowners don’t receive any equity when they sell.
Fact: CLT Homeowners receive any equity they’ve earned by paying down their mortgage, as well as a portion of the appreciation gained on the home’s value during their time of ownership. The CLT will set a shared-equity resale formula that usually sets the percentage of appreciation gained by the Homeowner at around 25%. In the unlikely event that a home depreciates, this formula is also applied and CLT homeowners only lose 25% of that depreciation rather than the full amount.
What’s most important when considering equity is remembering that CLT buyers typically wouldn’t have been able to become homeowners without the CLT’s support, so their financial gain should be measured compared to renting as opposed to market-rate homeownership. Compared to paying rent with no return, gaining equity and a portion of appreciation is a clear advantage.
MYTH #2: The CLT receives 75% of each home’s appreciation at resale.
Fact: While a CLT Homeowner’s resale price is set through the shared-equity resale formula that returns 25% of appreciation to the CLT Homeowner who is selling, the remaining 75% of appreciation does not go to the CLT, that value remains with the home, keeping the sales price affordable for the next buyer. This is what makes CLTs so special – they take a one-time subsidy investment and use it to make a home affordable for generations to come!
MYTH #3: CLT Homeowners are not allowed to make changes to their homes or land
CLT Homeowners have the title to their home. While the CLT retains title to the land, rights to the use of the land are conveyed to the CLT homeowner. In both cases, as long as modifications are in line with local zoning requirements, CLT homeowners can make any improvements to the home or land. When it comes to valuing that improvement, CLTs have a Capital Improvements Policy that returns 100% of the value of improvements made by the Owner to the Owner at resale, rather than sharing value gained by improvements. It is important for CLT homeowners to understand this policy, as improvements need to be approved by the CLT in advance in order to receive their full value rather than be subject to the shared-equity value.
MYTH #4: CLT homes bring down surrounding property values
From an appraisal standpoint, CLT homes should not be used as “comparables” to market-rate homes because restrictions make them exactly what you’d imagine – not comparable. When it comes to the impact of having CLT homes in the neighborhood or a market-rate home, research has actually shown that there was no negative impact on the values of market-rate homes surrounding CLT homes. In many cases, CLT homes actually increased home values of surrounding market-rate homes by improving the overall quality of housing in the neighborhood.
