Accessing Mortgage Financing Options for Buyers of Shared Equity Homes

This is true for buyers signing ground leases with community land trusts, deed-restricted covenants, or other types of resale restrictions, although the product offerings and the underwriting are different based upon the legal document used. 

 Fannie Mae provides a certification for shared equity programs that allows lenders to easily identify qualifying programs. Freddie Mac also accepts this certification. We recommend that all shared equity programs apply for this certification, which can be accessed here. 

When the leaseholder is a community land trust, lenders must confirm that the community land trust meets Fannie Mae’s eligibility requirements. These requirements are outlined in the Community Land Trust Checklist provided by Fannie Mae (see list below). 

 Many of these requirements can be satisfied by certifying a program through Fannie Mae’s shared equity certification. We recommend that programs recertify with Fannie Mae on an annual basis. For more questions about Fannie Mae’s shared equity requirements, you can contact their shared equity team at [email protected] 

However, each is subject to specific underwriting requirements, such as Loan-to-Value calculations and appraisal requirements.  

Programs must ensure that deed restrictions comply with all sections of B5-5.2: Loans with Resale Restrictions and B5-5.3: Shared Equity Transactions. We recommend program administrators preemptively review their legal documents for compliance before engaging with potential lenders. 

Fannie Mae will also purchase loans on properties that have an accompanying Community Seconds loan to provide affordability through a second mortgage. Fannie Mae will not purchase the secondary loan. 

The location of resale restrictions is another important consideration. Fannie Mae has different requirements for various circumstances. 

• If the resale restrictions are documented by a second mortgage or deed of trust, the lender must ensure that the second mortgage or deed of trust complies with Section B5-5.1, Community Seconds. 

• If the resale restrictions are included in a separate covenant or agreement (instead of a second mortgage or deed of trust), the resale restrictions must also comply with Fannie Mae’s requirements in B5-5.1-02, Community Seconds Loan Eligibility, related to shared appreciation in property value. Eligibility related to the “Provider’s Share in Appreciation in Value” may not align with a program’s resale formula or treatment of capital improvements. In such cases, lenders may contact the Shared Equity team at Fannie Mae for guidance or to provide feedback. 

Some important additional requirements to consider: 

• The right of the subsidy provider to shared appreciation must be clearly subordinate to the lien of the first mortgage delivered to Fannie Mae. 

• The program may retain the right of first refusal or option to purchase a resale restricted property when the borrower is in default or the property is in foreclosure. 

• The subsidy provider must exercise its right of first refusal or option to purchase within 90 days of receiving notification of the borrower’s default or the property foreclosure. 

Fannie Mae Shared Equity Certification Landing Page 

Fannie Mae Community Land Trust Checklist Fannie Mae CLT Ground Lease Rider. Form 2100 

CLT Appraisal Process 

Community Seconds Checklist 

Relevant Selling Guide Sections: 

Section B5-5.1, Community Seconds 

B5-5.1-01, Community Seconds Loans 

B5-5.1-02, Community Seconds Loan Eligibility 

B5-5.1-03, Community Seconds: Shared Appreciation Transactions 

Section B5-5.3, Shared Equity Transactions 

B5-5.3-01, Shared Equity Overview 

B5-5.3-02, Shared Equity Transactions: General Requirements 

B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements 

B5-5.3-04, Massachusetts Resale Restriction Loan Eligibility Requirements 

Section B5-5.3, Shared Equity Transactions 

B5-5.3-01, Shared Equity Overview 

B5-5.3-02, Shared Equity Transactions: General Requirements 

B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements 

B5-5.3-04, Massachusetts Resale Restriction Loan Eligibility Requirements 

Many of these requirements can be satisfied by certifying your program through Fannie Mae’s shared equity certification which is accepted by Freddie Mac. We recommend that programs recertify on an annual basis. 

For more questions about Freddie Mac’s community land trust and shared equity requirements, you can call 1-800-FREDDIE (373-3343) to be connected with the appropriate staff. 

Programs must ensure than any deed restrictions they put in place meet the requirements listed in Section 4406.2 of Freddie Mac’s Selling/Servicing Guide. We recommend program administrators preemptively review their legal documents for compliance before engaging with potential lenders.  

Homebuyers can also use secondary financing that meets Freddie Mac’s Affordable Seconds® to subsidize the purchase price in addition to other certain down payment assistance programs and other forms of secondary financing. 

The program may also share appreciation in specific scenarios. The program may retain the right of first refusal to purchase a resale-restricted property for 90 days, when a mortgage secured by a resale-restricted property is in foreclosure and/or subject to an approved short sale. 

Community Land Trust (CLT) Mortgages Landing Page 

Chapter 4502: Affordable Housing Preservation: Shared Equity Programs – Community Land Trusts 

• 4502.1:Overview for Community Land Trust 

• 4502.2:Eligible Borrowers for Community Land Trust Mortgages 

• 4502.3:Eligible and ineligible Community Land Trust Mortgages 

• 4502.4:Loan purpose, eligible property and occupancy types and underwriting requirements for Community Land Trust Mortgages 

• 4502.5:Maximum loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios and value for Community Land Trust Mortgages 

• 4502.6:Appraisal requirements for Community Land Trust Mortgages 

• 4502.7:Requirements for Community Land Trust Ground Leases and Ground Lease Riders 

• 4502.8:Security Instruments for Community Land Trust Mortgages 

• 4502.9:Title insurance requirements for Community Land Trust Mortgages 

• 4502.10:Other requirements for Community Land Trust Mortgages 

• 4502.11:Landlord education 

Chapter 4406: Mortgages Secured by Properties Subject to Resale Restrictions 

• 4406.1:Eligibility and underwriting requirements for Mortgages secured by properties subject to resale restrictions 

• 4406.2:Resale restriction requirements for Mortgages secured by properties subject to resale restrictions 

• 4406.3:Payment of financial obligation requirements for Mortgages secured by properties subject to resale restrictions 

• 4406.4:Appraisal requirements for Mortgages secured by properties subject to resale restrictions 

• 4406.5:Determining value to calculate the LTV, TLTV and HTLTV ratios on Mortgages secured by properties subject to resale restrictions 

• 4406.6:Documentation options and public land records requirements for Mortgages secured by properties subject to resale restrictions 

• 4406.7:Right of first refusal requirements for Mortgages secured by properties subject to resale restrictions 

• 4406.8:Mortgages secured by properties subject to income-based resale restrictions 

• 4406.9:Excess proceeds for Mortgages secured by properties subject to income-based resale restrictions 

• 4406.10:Requirements for Affordable Seconds®, subsidy providers and program administrators for Mortgages secured by properties subject to income-based resale restrictions 

• 4406.11:Special delivery requirements for Mortgages secured by properties subject to income-based resale restrictions 

Since these loans are not subject to the requirements of the GSEs, the shared equity program may be able to negotiate some terms of the product offering directly with the lender. Keep in mind that a portfolio product may not necessarily have better terms than a loan conforming to Fannie Mae or Freddie Mac requirements. 

Regardless of the lender’s intentions to sell to a GSE or hold in portfolio, we advise that programs still provide resources on Fannie Mae and Freddie Mac product offerings to boost confidence that the mainstream housing finance system accepts these mortgages. This includes applying to have your program certified by Fannie Mae. 

Some of these may conform to GSE requirements or come with additional benefits, such as below-market interest rates or down payment/closing costs assistance. Any shared equity program will likely have to be reviewed and approved for homebuyers to use this product. 

 You can learn more about HFAs on the website for the National Council of State Housing Agencies, their trade association. NCSHA also has a directory where you can look up the HFA in your state. 

It’s important to note that USDA requires affordability restrictions terminate upon foreclosure. 

[The Section 502 Direct Loan Program assists low- and very-low-income buyers in eligible rural areas by providing payment assistance to increase a homebuyer’s repayment ability. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. For the Single-Family Housing Guaranteed Loan program, the USDA “stands behind” the loan made by a private lender by guaranteeing a portion of it. If something goes wrong and a homebuyer cannot make the payments anymore, the lending institution has any losses they incur guaranteed to be covered by the USDA. This guarantee provided to lenders enables them to offer more favorable terms. 

With VA loans, the homebuyer obtains a loan from a private lender, and the VA “stands behind” the loan by guaranteeing a portion of it. If something goes wrong and a homebuyer cannot make the payments anymore, the lending institution has any losses they incur guaranteed to be covered by the VA. This guarantee provided to lenders enables them to offer more favorable terms. 

While there are provisions for resale restrictions in service of affordability, FHA has a specific definition of what a “reasonable” share of appreciation is between the homeowner and the program. This is defined in section II.A.1.v of the Single-Family Handbook as being at least 50 percent. Although HUD allows programs to have a sliding scale of appreciation sharing that begins at zero percent, this must scale up to a 50 percent share within two years. 

This requirement disallows the resale formula for practically all shared equity programs. The average appreciation share for the homebuyers is 20%, which allows for the deeper subsidies required to provide lasting affordability.