|shared equity: overview » introduction » shared appreciation|
|Shared appreciation loans are structured as second mortgages, but are
considered "silent" in that borrowers make no payments until they sell
the home (or, in some cases, refinance the first mortgage). At the
time of sale or refinance, the family is required to repay the full amount of the
loan plus a portion of the home price appreciation. |
In this way, the amount returned to the subsidizing entity is based on increases in home prices, which helps to preserve the "buying power" of public subsidies.
One common approach to designing shared appreciation loan programs is to base the share of appreciation payable upon sale of the home on the share of the original purchase price that was subsidized.
For example, if a family received a $50,000 subsidy to buy a $250,000 home, the family would be required to give the community 20 percent ($50,000 divided by $250,000) of any home price appreciation at the time of sale, in addition to repaying the initial $50,000.
Photo credit: Mark Ballogg, Ballogg Photography, Inc., courtesy of Landon Bone Baker
|Solutions in Action|
|Santa Cruz, California, a city with one of the least affordable housing markets in the country, offers loans to homebuyers that must be paid back in full upon resale. Instead of interest, borrowers pay the city one percentage point of the home price appreciation for every percentage point of the purchase price funded by the city's second mortgage program. For example, down payment assistance equal to 20 percent of the home purchase price would, upon sale of the home, require repayment of the principal balance plus 20 percent of home price appreciation.|
Emeryville, California provides silent second mortgages of up to 15 percent of the purchase price to buyers with incomes below 120 percent of area median. After sale of the property, participating borrowers must repay the principal of the loan in addition to either a low-rate interest payment or a share of the appreciated value of the home, whichever is greater. The interest figure is equivalent to 75 percent of the interest on a first mortgage up to a maximum of 5 percent. The share of the appreciated value of the home owed to the City is equal to the percentage of the total value of the home that was loaned less the value of any capital improvements made since purchase of the home.
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Shared appreciation loans
Homebuyers that receive these "silent" second mortgages make no payments until sale of the home, at which time the full loan is repaid plus a share of the home price appreciation.
Also in this section:
Subsidy retention strategies
Subsidy retention programs subsidize the unit, rather than the buyer, ensuring a specific home remains affordable over the long term.
Implementing shared equity approaches
Key issues related to designing a shared equity policy.
Resident acquisition of manufactured home parks
By facilitating the cooperative purchase by residents of manufactured home parks, communities can preserve affordable housing opportunities and help residents gain stability and build assets.
Click here to view other resources related to shared equity homeownership.