HomeBuyer Initiated/Driven Programs Jim Mischler-Philbin, Northern Communities Land Trust Duluth, MN Erika Malone Kuls

1. HomeBuyer Initiated/Driven Programs Jim Mischler-Philbin, Northern Communities Land Trust Duluth, MN Erika Malone Kulshan Community Land Trust Whatcom County, WA Portland, OR August 18, 2005

2. What are HomeBuyer Driven Programs? • Just like it sounds . . . • The buyers drive the process • They shop for homes on the open market like “real” buyers, except • They have financial assistance, education and hand holding from the CLT

3. Or, as Jim brilliantly states, . . . Where buyers bring homes to the CLT instead of the other way around

5. NCLT’s Mission Northern Communities Land Trust (NCLT) is a community-based, membership-supported nonprofit organization working to provide quality, permanently affordable homeownership opportunities for low-to-moderate income households in the city of Duluth. NCLT works with numerous housing partners, neighborhoods, and City government to help individuals and families realize the dream of homeownership otherwise unavailable to them.

6. NCLT Board of Directors To ensure community representation, NCLT members elect a board of directors that consists of: • 1/3 NCLT homeowners • 1/3 representatives of other organizations that support low income people & issues • 1/3 general community members

7. HOMELAND Home Ownership Means Equity, Legacy, Affordability, Neighbors, & Dreams • Purchase/rehab program • Started in 1999 • 65 households have purchased homes using the HOMELAND Program

9. KulshanCLT’s Mission Kulshan Community Land Trust strengthens community by holding land in trust for permanently affordable homeownership and other community needs, and by offering financial assistance and educational services to people of limited means.

10. KulshanCLT History • KulshanCLT incorporated in 1999 • Hired first staff is 2001 • Started HBE in 2/2002 • First HBDP acquisitions in 7/2002 • Will start first new construction this fall • First Condominium acquisition . . . . . . . . . . . . . . . . . NEXT WEEK!

12. Three ways to become an NCLT homeowner • HOMELAND program - Purchase and rehab • Waiting list • Resaleof existing Land Trust homes • New Construction • Current project is called “City Homes”

13. 2005 NCLT HOMELAND Funding(10 units) • $120,000 State Housing Finance Agency -downpayment/affordability gap grants ($80,000) -accounting, inspections, legal, emergency rehab & title insurance ($15,000) - developer fees ($25,000) • $120,000 Greater Minnesota Housing Fund (downpayment/gap) • $50,000 Federal Home Loan Bank (down payment/gap) • $220,000 HOME for Rehab (through HRA) • $15,000 CDBG for Staffing (through HRA) • $10,000 Private Foundation for marketing/staffing • $750,000 (approx) in mortgage financing. Commitments from 4 local lenders • $20,000 (in kind - HRA Rehab Administration costs)

14. 2005 Income Limits(buyers’ gross annual income must be below these limits at the time of purchase) Household sizeIncome limit 1 $30,600 2 $34,950 3 $39,300 4 $43,700 5 $47,150 6 $50,650 7 $54,150 8 $57,650

15. What is an Affordable Home? • Family does not spend more than 30% of gross income for housing costs • Housing costs include: • Principal • Interest • Taxes • Insurance • Lease Payment (if going through the Land Trust) • For example: • A family with a gross annual income of $24,000 is able to afford a house payment (including all the above costs) of about $600/month

16. Compare NCLT homeownership to conventional homeownership Same • Homeowner obtains a mortgage with a bank • Homeowner accumulates equity • Home can be inherited • Homeowner pays property taxes • Homeowner can make alterations and improvements Different • The purchase price of an NCLT home is lower–20 to 30 % below market rate–because the land is already paid for, and because of various subsidies NCLT has obtained • Homeowner leases the land for $25/month from NCLT • Home must be sold to an income-qualified buyer. Homeowner receives 100% of what they have paid off on the mortgage, plus 30% of the appreciation on the home.

17. There are currently 103 Land Trust homes in the City of Duluth.

18. HOMELAND Program2004 Homebuyer Statistics Average gross annual income = $25,308 Average percentage of median income = 59% Average mortgage = $72,500 Average monthly housing payment (includes principal, interest, property taxes, homeowners insurance and lease fee) = $560

19. HOMELAND Program Features • Buyers find homes—chose from homes that are for sale ANYWHERE within the city limits of Duluth • Free home inspections/property analysis • $15,000—$25,000 downpayment grant • Up to $22,000 grant for rehabilitation • 5-6% 30-year fixed interest rate • Up to $3,000 interest-free MHFA loan to cover closing costs (for qualified buyers) • Buyer is required to contribute $1000 or 1% of purchase price, whichever is less

20. HOMELAND, continued • HOMELAND buyers share appreciation of their homes with future buyers, ensuring long-term affordability of homes • Compatible with other homeownership assistance providers and programs

21. HOMELAND Property Criteria Lot Requirements: • Adequate space between homes for maintenance • Side lot lines at least 1 foot from house • Rear lot lines at least 5 feet from house • Front of home cannot abut sidewalk Foundation/Structural Integrity: • No evidence of substantial settlement • No excessive dampness • Concrete floor in basement • Concrete or treated wood perimeter foundation • No major structural defects Exterior: • Minimum of 5 years life expectancy of current roof • Serviceable siding • Serviceable windows with screens

22. HOMELAND Property Criteria, cont. Interior: • Separate cooking facilities • Separate bathing facilities • No excessive peeling of potentially lead-based paint • Ventilated attics and crawl spaces • Ventilated bathrooms (operable window or exhaust fan) • Minimum of 6 square feet of countertop in the kitchen • Adequate smoke detectors • Bathroom and kitchen floors impervious to water Mechanical: • Operating central heat capable of heating dwelling • Permanent walls and floor in utility rooms • All wells and private sewage system approved by government authority • Adequately functioning plumbing • Minimum of 5 years life expectancy for hot water heater and furnace • Reasonably insulated • Minimum of 100 amp service • Grounded circuits for all appliances • No hazardous wiring or fixtures

23. HOMELAND Program Application and Purchase Checklist • Land Trust Orientation • Land Trust Application • Income Verification by Land Trust staff • Homebuyer Education Class (“Homestretch” AND/OR “Home Buyers Club”) • Financial Prequalification by Land Trust staff • Mortgage Pre-Approval by North Shore Bank or Wells Fargo • Final Interview and Approval by Board of Directors • Buyers find a home • Review of Land Lease with an attorney • Purchase agreement*** • Inspection Contingency • Financing Contingency • Appraisal • Title Commitment showing no liens or defects in title • Homeowners insurance secured • Rehab sign-up with HRA • Closing, recording of documents • Rehab completed and inspected ***Before a purchase agreement can be signed, potential homebuyers must complete a Land Trust application, have their income verified by Land Trust staff, and be mortgage pre-approved from a participating lender

25. KulshanCLT Program Overview • First acquisition in July 2002 • Currently own 31 homes • Most in the City of Bellingham, 4 “in the County” • Average purchase price = $145,710 • Average square footage = 1039 sq. ft. • Average monthly cost (PITI and ground lease fee) = $720 • Maximum = $901 • Minimum = $472

26. KulshanCLT Funding sources • House Key + CLT – Washington State Housing Finance Commission secondary funding - $25,000 per home (LOAN – 3% simple interest) • City of Bellingham HOME funds • $15,000, $20,000 or $25,000 depending on household income and size

27. KulshanCLT Funding sources (cont.) • Federal Home Loan Bank • $7,000 per unit – if first mortgage is through Washington Mutual (Affordable Housing Program) • $5,000 per unit – through member bank (Home$tart savings) • Washington State Housing Trust Fund • $19,000 average per unit – grant

28. Other sources of funds • Buyers Financing • Conventional first mortgage • Washington State Housing Finance Commission (House Key) • Other silent seconds • Home$tart (FHLB) • HomeChoice (WSHFC) – or specialty product • Habitat for Humanity • Employer contributions – have yet to do

29. KulshanCLT’s HBDP Funding Breakdown

30. KulshanCLT Outreach, Intake and Education • How do people know about us? • Coverage in the media (newspaper articles, TV public service announcements) • Free advertising (Community Calendars, etc.) • Word of mouth • HomeBuyer Education • Free and open to the community • 6 hours, sponsored by the WSHFC • Eligibility requirement to participate in the program • HomeOwnership Services • Credit and budgeting for hopefuls • Home Repair classes for HomeOwners

31. Roll Film

32. KulshanCLT’s Application Process • Apply – application attempts to get borrower ready to go to the bank • Check eligibility and “bankability” • Letter obligating subsidy to borrower • Send them to the bank • Pre-approval for a loan – shopping price • Shop with a real estate agent • Purchase and Sale agreement • Inspection • Seller’s work orders and repairs • Close and split title

34. Key Components of the Land Lease • 99-year renewable land lease • Homes must be owner-occupied • You pay all taxes and assessments • You receive credit at resale for any improvements you do to the home (if documented and appraisal obtained) • Home can only be sold to another low-to-moderate income homebuyer at the price determined by the Resale Formula

35. HOMELAND Program Statistics, Round 1 (location, household size, gross annual income, % of median income, mortgage amt) HOMELAND Round One (2000) Underserved populations: West Duluth (4) $14,117 = 31% $39,500 Single female head of household: 1 West Duluth (1) $17,682 = 56% $47,900 Household of color: 0 East Hillside (3) $17,199 = 42% $51,900 Average Median Income: 53% Duluth Hts (1) $19,240 = 61% $51,200 Average purchase price: $58,555 Observ. Hill (2) $26,241 = 73% $41,150 (High $73,000, Low: $37,000) Lincoln Park (1) $20,390 = 65% $73,000 Average mortgage $45,842 East Hillside (1) $12,261 = 39% $22,600 Average gross income: $18,275 West Duluth (1) $16,041 = 51% $52,500 West Duluth (3) $25,584 = 64% $39,675 Riverside (1) $14,000 = 45% $51,000

36. HOMELAND Program Statistics, Round 2 (location, household size, gross annual income, % of median income, mortgage amt) HOMELAND Round Two (2001) Underserved populations: Lakeside (1) $20,176 = 58% $65,750 Single female head of household: 2 Lakeside (1) $24,648 = 71% $53,065 Households of Color: 1 Central Hillside (4) $34,680 = 70% $45,000 Average Median Income: 64% Denfeld (2) $25,100 = 63% $48,000 Average purchase price: $73,650 Central Hillside (1) $25,200 = 72% $31,650 (High: $101,800, Low: $48,500) Gary/New Duluth (4) $28,036 = 56% $70,217 Average mortgage: $56,750 West Duluth (2) $23,556 = 59% $40,000 Average gross income: $25,870 Morley Heights (3) $26,208 = 59% $86,250 East Hillside (1) $24,445 = 70% $61,000 Lakeside (2) $23,740 = 60% $66,500

37. HOMELAND Program Statistics, Round 3 (location, household size, gross annual income, percentage of median income, mortgage amt) HOMELAND Round 3 (2002)Underserved Populations: East Hillside (1) $15,314 = 43% $71,300 Single female head of household: 5 West Duluth (2) $18,720 = 46% $52,900 Household with disabled member: 1 East Hillside (1) $19,348 = 55% $58,000 Average Median Income: 58% Gary/New Duluth (1) $22,619 = 64% $71,200 Average purchase price: $72,450 West Duluth (2) $30,222 = 74% $71,000 (High: $86,500, Low: $58,000) Lincoln Park (1) $21,200 = 60% $43,840 Average mortgage: $55,475 West Duluth (1) $23,478 = 66% $51,000 Average gross income $21,450 Duluth Heights (1) $23,920 = 67% $60,000 West Duluth (2) $11,376 = 35% $37,650 East Hillside (2) $22,177 = 55% $43,840 West Duluth (2) $24,200 = 60% $63,000 Lincoln Park (1) $26,726 = 77% $61,900 Endion (2) $18,093 = 45% $71,635 West Duluth (2) $16,640 = 41% $58,900 Lakeside (1) $27,822 = 80% $49,600

38. How a purchase with NCLT compares after 10 yearsfor a home originally worth $75,000 With NCLT Conventional Approx. Income Needed to Buy $19,827 (6.5% interest) $27,985 (8%) Original Purchase Price $60,000 (home only) $75,000 Value at Original Purchase $66,000 (home only) $75,000 Value at Resale $126,237 (home only) $143,451 Amount of Appreciation $60,237 (home only) $68,451 Owner’s Share $18,071 (30%) $68,451 (100%) Amount Originally Borrowed $60,000 $71,750 Amount Still Owed $50,247 $62,525 Sale Price of Home $78,071 $143,451 Pay Remaining Loan Amount $50,247 $62,525 End up with $27,824 $80,926 Interest Paid $35,756 $53,534 Principal Paid $9,752 $9,244 Approx. Income Next Buyer $24,911 (6.5% interest) $48,143 (8%) $28,097 (8% interest)

39. How a purchase with NCLT compares after 10 years, cont. Notes: • If property values go down or remain constant, NCLT Leaseholders are not guaranteed a profit, and could take a loss, just like non-NCLT Leaseholders. • This example assumes no capital improvements take place. • While the return in cash from a sale after 10 years is much lower with the NCLT purchase, it is important to remember the NCLT buyer paid $166/month less for a house payment during the 10 years. $166 x 12 months x 10 years = $19,920. $19,920 (without figuring possible interest if the money was invested) added to the $27,824 is a total of $47,744—a bit closer to the return of $80,926 of the conventional deal. • It is also important to remember that $3750 of the $80,054 return is money paid as downpayment at the beginning of the 10 years while there was no downpayment needed for the NCLT transaction. • Assumptions: • The home is owned for 10 years. • Property values appreciate. • Taxes and insurance do not appreciate. • Initial HOMELAND Grant was $15,000 to first buyer. • Interest rates of resale are identical to original sale.

40. HOMELAND homes Lincoln Park Endion

41. HOMELAND homes

42. HOMELAND homes Lakeside West Duluth

44. Kulshan CLT’s Resale Formula Mortgage amount + downpayment = X Resale price = X + 1.5% of X Compounded annually THE FINE PRINT (plus the monetary value of approved improvements and minus the monetary value of any excess damage)

45. Kulshan CLT: Housing Example 1

46. Kulshan CLT: Housing Cost Example 1

47. Another Kulshan CLT Example (2)

48. Example 2

49. And. . . Still another (3)

50. Example 3