Even though we were not bringing in much money at the time, and are still struggling in that department, I was researching programs for first-time home buyers in Seattle, as well as cooperative living communities. Although I wasn’t making a lot of money and didn’t have much in savings, I was curious to see if we could still pull off homeownership and build equity.
I made an appointment with Homestreet Bank to apply for a home loan, or to get pre-approved before looking at houses, and see what our price range would be. It didn’t work out, and my wife and I left with no offer whatsoever.
But I didn’t give up complete hope. I attended a first-time home buying educational seminar, put on by a local mortgage broker through a partnership with the city at a local library which, at the very end, contained a few slides on a Seattle Community Land Trust.
The land trust model is an alternative method to homeownership that doesn’t get much media attention, even with rising rents and home prices. The model splits the ownership between the land trust and the homeowner, and that relationship aims to create more affordable housing for the foreseeable future.
Being a potential first-time home buyer on its face is daunting, let alone trying to wrap my mind around this alternative home ownership model. But I was still excited. Qualifying financially for the program at this point was easy, as I had to simply make less than 80% median area income.
My wife shared my excitement but neither of us knew exactly what we were getting into, no matter how much we research we did. We had to learn by doing.
The house the land trust showed us, which they had listed at $200,000, was a bit below market value and was one of the cheapest houses in the city limits that was actually livable. This house was acquired by the land trust about two years earlier when the previous owner had to foreclose. Land trusts use their raised capital to purchase parcels as well as fund developments for future homeowners. In addition to purchasing the home, the land trust invested in bringing the home up to code, updating the electrical and plumbing, as well as adding a fresh coat of paint to the interior and exterior.
The house was small, but it was a street that didn’t have much traffic. When I witnessed a hummingbird darting from flower to flower in the overgrown backyard garden during one visit I was all in.
With everything seemingly lining up, I felt like this was my one chance to “own” a home in Seattle. After we decided that we wanted to move forward with this home, the next step was to secure a loan with a mortgage broker. We met the income level to be eligible for the community land trust and first-time home buying down payment assistance offered by the city, which meant while we didn’t make too much, we now had to make enough to get the home loan. In other words, the mortgage broker doesn’t care that you’re poor, you have to show a stable, sustainable income worthy of them offering you a loan. Thus, making less than 80% the median income in Seattle while simultaneously earning enough to qualify for a mortgage on a Seattle house is, to say the least, a high-wire balancing act. Even though my monthly payment for my potential mortgage was below what I was paying on rent currently, I barely qualified for the loan, and only because I got a special deal from the home insurance company to make the numbers work.
But it was all worth it. By purchasing a house through a community land trust, our mortgage ended up being less than our monthly rent check at our apartment. So, how does it all work?
How Split Ownership Results in a Feeling of Full Ownership
When you buy a home through a community land trust you legally are only buying the structure, the land trust retains ownership of the land. The homeowner would generally sign a 99-year lease agreement with the land trust to rent the land on which the home sits, which, in my case, is a monthly $35 fee. It’s called a nominal fee, and the reason for it is to help the organization cover some administrative costs.
A land trust is run as a nonprofit and, so if they were to dissolve or sell the land of which you’re leasing, the new owner must uphold the lease. The lease agreement specifies that the party paying the lease has the right of first refusal, or, in other words, the option to buy the land outright otherwise. Furthermore, the lease agreement is the mechanism that allows the community land trust to offer affordable housing even should ownership change hands, thus keeping this home affordable for the foreseeable future.
Even in this arrangement, homeownership still feels like you actually own the whole property. You can still make changes to your home and land without consulting with the land trust. The lease and purchase agreement is fully inheritable and you make payments toward your mortgage.
Seattle’s Down Payment Assistance for First-Time Homebuyers is a Great Resource
The city of Seattle, in a partnership with the community land trust, gave us a loan of $60,000 that didn’t need to be paid back for 30 years and will not bear any interest during that time. I say in partnership in that this specific city program was promoted by the land trust and the land trust helped us fill out all the necessary paperwork. The loan itself is deferred for 30 years, with a simple interest of 3% that’s also deferred for 30 years.
As mentioned above, the agreed upon price of the home was $200,000. Thus, when we went to go get a mortgage we needed to finance around $140,000. The savings go beyond this figure because the down payment assistance loan, in the mortgage broker’s eyes, is seen as a down payment; we don’t have to pay mortgage insurance. I don’t recall exactly, but I remember being quoted as saving between $100 — $200 a month by not having to pay mortgage insurance.
Regardless, when I went to apply for a mortgage, I needed to finance $140,000. That’s a 30% discount. The $35 dollar land lease paid to the land trust is far less per month than if I had financed the entire $200,000.
Working With a Land Trust
Community land trusts run in large part with financial help from cities and private industry. Although we felt uncomfortable, the land trust asked us if they could host a check presentation with Wells Fargo, who was donating a large sum of money with one of those photo ops with oversized checks. Although we had not finalized or moved in yet we were also asked to attend. Can’t say I enjoyed being the poor folk these people were helping at the event. Although, when your future home is hanging in the balance, one evening of feeling somewhat uncomfortable is easy to rationalize.
I’d describe working with the land trust in securing our home the same as I’d imagine working with a real estate agent specializing in getting low-income families into homes. Beyond the guidance and preparation, we benefitted from not having to commission our own real estate agent when we purchased the home.
Instead, the land trust acted as the buyer and the seller. I could see some moral issues, such as taking advantage of an unaware, uncritical first-time home buyer, but because of their mission statement about providing generations of affordable housing, I didn’t feel as though we were being bamboozled.
Also, after we moved in and everything was already signed, we ran into a few issues with the home itself. For example, the toilet didn’t work after a couple of days. The tub wasn’t sealed properly so when we took our first shower a lot of water ended up in the basement. Our kitchen sink had a blockage. Our washer and dryer quit working.
Luckily for us, the land trust fixed most of these issues with little pushback. We explained that we were essentially promised a move-in ready home and that in order to meet such promises, these sorts of issues should have been taken care of. And they fixed them all within the first six months of when we moved in. Furthermore, the land trust helped us get out of our current lease at the time without suffering any financial penalty.
We did understand, had we simply bought the home outright we’d be on our own through all this initial move-in mess, for which we are extremely thankful for the land trust’s help from the initial buying conversations to post-move-in guidance.
Reflecting on the Decision, Five Years Later
Although this type of arrangement makes homeownership more affordable, the income window is tight. In order to be eligible for the home you can’t make too much money but at the same time, you have to make enough for a mortgage broker to give you a loan.
Furthermore, if we attempt to sell the home we are to sell it in the same way that we bought it. Given that tight window, this can be a tricky maneuver, and can cause quite a headache if you’re trying to move on from your home in a hurry. We would have to find a buyer who doesn’t make 80 percent median income yet has the credit and income level to qualify for a hefty home loan. Talk about walking a tightrope.
Most of all, I think of my arrangement in my land trust home as personal rent control. With taxes and such, I think my monthly payment has increased by about $20 a month since I bought the home in 2012. Given the way rents have risen since I bought the home I often wonder where my family would live had we not made this deal. Would we be in Everett or the Tacoma area and commuting over an hour each way to work? As reported by Mike Rosenberg of the Seattle Times, “Rents in Seattle have now climbed 57 percent in the last six years, costing the average renter an extra $635 a month.” Ways to counteract this trend, beyond moving farther out from the city, are slim to none.
No arrangement is perfect but, all things considered, I think we are in a better spot today because we learned about community land trusts. Furthermore, it feels good to be involved, however personally, in a system that creates and promotes more affordable housing for those a little less fortunate.
This article was originally posted on Medium.