FAQs | PeopleTrust

What is Shared Equity?

Shared equity is an innovative approach to affordable homeownership. Through shared equity programs, a home that would normally be outside of a working family’s price range is made affordable through partnerships between the homebuyer and organizations such as PeopleTrust. These organizations partner with homebuyers in the purchase of the home in order to bring down the market value to an affordable sales price. The homeowner is then able to enjoy all of the benefits of homeownership, including the opportunity to build assets through home equity gains.

If and when the homeowner decides to sell the home, they share the gains in home price appreciation (i.e. equity) with the public investor. In turn, the public investor (such as PeopleTrust) is able to resell the home at an affordable price to future generations of working families.

For more information on Shared Equity, visit National Housing Conference and Center for Housing Policy.

What is Community Land Trust?

According to the National Community Land Trust Network, a community land trust (CLT) is a private non-profit community organization (such as PeopleTrust) that safeguards land in order to provide affordable housing opportunities. CLTs buy and hold land permanently, preventing market factors from causing prices to rise. CLTs build and sell affordably-priced homes to families with limited incomes–the CLT keeps the price of homes affordable by separating the price of the house from the cost of the land. When a family decides to sell a CLT home, the home is resold at an affordable price to another homebuyer with a limited income. The goal of CLTs is to balance the needs of homeowners to build equity and gain stability in their lives with the needs of the community to preserve affordable homeownership opportunities for future generations.

Who is eligible for an affordable home through PeopleTrust?

PeopleTrust’s Affordable Homes are marketed to families at or below 80% of Median Family Income (MFI). For rental units, the overall affordability benchmark is 60% of MFI.

What is Median Family Income (MFI)?

Median Family Income (MFI) is a leading economic calculation commonly used as a benchmark in affordable homes programs. MFI is an annual gross economic figure. The U.S. Department for Housing and Urban Development (HUD) determines the Median Family Income annually.

So what does 80% or 60% of MFI mean in dollar terms?

For 2010, MFI for Austin and Travis County is $73,800 for a family of four. That means that 80 percent of MFI–the threshold for a for-sale PeopleTrust Affordable Home–is $59,050 for a family of four, or $41,350 for a single person. The for-rent affordability threshold of 60% of MFI is $44, 280 for a family of four, $31,020 for a single person.

What if I make a lot less than 80% or 60% of MFI? Will I ever be able to afford a PeopleTrust affordable home?

PeopleTrust has committed to pursue strategies that could allow for deeper affordability. Several options are being considered that could result in housing availability to meet this goal. For more information, contact 512.472.8087 or email us.

How do I qualify for a PeopleTrust home?

As part of the sales process, prospective buyers go through an income and asset certification process to verify their eligibility to purchase an affordable home. Prospective buyers must also qualify for a home mortgage. Prospective tenants in PeopleTrust’s affordable for-rent homes will also be income-certified by rental property owners before signing their leases. This certification will be repeated annually.

What kind of counseling is available?

PeopleTrust’s partners provide homebuyer education and credit counseling for buyers who can, in the near term, be ready to qualify for a mortgage. Long-term counseling is also available for those who will need more time to be ready for homeownership.

Frameworks CDC, PeopleTrust’s counseling partner, offers education and counseling sessions that cover topics such as pre-qualification, ratios, appraisals, reviewing and understanding credit reports, understanding mortgage and closing costs, property inspections, down payment, fair lending, budgeting, home maintenance and repair, insurance, home safety, and affordable mortgage products. Frameworks is a non-profit agency that provides services at no cost to homebuyers who are purchasing a PeopleTrust affordable home.

Numbers by the Book, a for-profit, fee-based, credit rehabilitation company and a partner of PeopleTrust, is in place to help prospective PeopleTrust homebuyers resolve specific issues with their credit and finances. Numbers by the Book offers a free consultation for prospective PeopleTrust homebuyers who are interested in assistance with rehabilitating their credit to become mortgage ready. Numbers by the Book may charge additional fees for additional services.

In addition, PeopleTrust coordinates Shared Appreciation Orientation Sessions and conducts individual buyer counseling to address any questions that affordable buyers may have about the program.

What happens if income increases after the homeowner moves into his or her affordable home?

This is only a concern for renters. Purchasers of affordable homes do not need to have their income recertified after initial certification.

The guidelines of the PeopleTrust Affordable Homes Program, and of most rental affordability programs, allow for tenants’ incomes to increase after move-in, up to what is defined under federal guidelines as “140% of 60% of MFI.” In 2010, 60% of MFI for a single person is just under $32,000 in Austin. Therefore, a single tenant could see his/her income increase after move-in to approximately $44,000 without affecting his/her eligibility to rent a PeopleTrust Affordable home. (The MFI benchmarks change every year, so these figures are approximate and used as examples only.)

If the annual income certification shows that a tenant’s income increases to above “140% of 60% of MFI,” then the tenant is no longer eligible for PeopleTrust’s Affordable Homes Program and will need to pay market rate rents.

If a homebuyer buys a PeopleTrust affordable home, can he or she sell it later?

In the first year of owning a PeopleTrust affordable home, the owner may resell the home at the initial affordable purchase price. After one year, buyers can sell their homes and share the gains realized from the sale with PeopleTrust, the non-profit corporation that implements the Shared Appreciation Program.

What does “sharing the gain” mean?

When purchasing a PeopleTrust affordable home, homebuyers enter into what could be described as a partnership with PeopleTrust. The market value for the PeopleTrust Affordable homes are higher than the affordable price being paid by the homebuyer.

PeopleTrust is, in effect, making up the difference between the sales price and the market value of the home, and will hold a second lien on the home for that amount. For example, if a buyer pays $150,000 for an affordable home whose appraised value is really $200,000, PeopleTrust will hold a second lien for $50,000.

When that home is later sold, PeopleTrust will get paid back the amount of that second lien from the sales price. (This happens after the remaining primary mortgage is paid and the owner is repaid the initial down payment and equity invested in paying down the primary mortgage). If, as often happens, the home has increased in value, the owner and PeopleTrust both share in the resulting gains.

To continue our example, if the home described above resells for $250,000 (net of closing costs), once the mortgage, owner’s equity and second lien are repaid, there will be $50,000 left over in gains. Since PeopleTrust’s contribution was 25% of the initial value of the home, PeopleTrust will receive 25% of the gains, or $12,500, with the remaining 75%, or $37,500, going as gains to the homeowner.

This shared appreciation system allows affordable buyers to build equity and realize the value of their investment in real estate, while also allowing PeopleTrust to reinvest its funds in the Affordable Homes Program and sustain affordability.

So does that mean the homeowner really only owns 75% of the home?

No. PeopleTrust’s contribution is a second mortgage, except that buyers don’t have to pay interest on it or make monthly payments to PeopleTrust for 30 years.

PeopleTrust does, as a lien holder, retain certain rights, including the right to have its contribution repaid in the event that a buyer vacates or rents out the property, defaults on the primary mortgage or refinances the home without PeopleTrust’s prior approval.

What happens if the home does not increase in value, or if the home decreases in value?

PeopleTrust is only repaid from net gain on the home at resale. If the home does not increase in value, then PeopleTrust only recoups the amount of the second lien, because there is no gain to share. If the value of the home decreases, PeopleTrust’s second lien is repaid based on available net proceeds after the primary mortgage and owner’s equity is repaid, if any.

Can the homeowner pay off PeopleTrust’s second lien?

PeopleTrust’s Affordable Homes Program is primarily designed to offer the opportunity of homeownership to qualified buyers who typically cannot pay off such a loan before it is due. While the homeowner may repay the second lien amount, it may not be to the homeowner’s advantage to do so. The shared equity amount cannot be prepaid.

Can the homeowner refinance or pull equity from the home?

Yes, if PeopleTrust has received proper notice and approves the refinancing. Since refinancing changes the owner’s equity in the property, and since PeopleTrust is sharing in that equity, refinancing has to be done under terms that are agreeable to both the owner and PeopleTrust. Also, the mission of PeopleTrust and the Affordable Homes Program is to support buyers’ efforts to build financial stability and sustainability. Review of future refinancing agreements is consistent with and an extension of the financial education and counseling that makes up a key component of the Affordable Homes Program.