Community Land Trusts (CLT) Mortgages

Community land trusts are created to preserve long-term affordable housing by purchasing homes in their communities, then leasing the land using a long-term ground lease to low-income and moderate-income families at affordable monthly ground rents.  Community Land Trusts (CLT) have had a foothold in the Twin Cities for decades.  More broadly, the leasehold form of home ownership is more common in Minnesota than many would think.  It is a market that Realtors would do well to be skilled in.  More especially, it is a market that is crying out for more readily available, quality financing through Fannie Mae.  For the most part, loans for purchasers of Community Land Trust properties are done as portfolio loans at banks that typically come with higher rates and/or less advantageous terms.  But better options exist.

It is exactly the false notion that CLT’s aren’t common for the Minnesota real estate marketplace that has prevented clean Fannie Mae loans from being more available.  Underwriters will make this assumption and turn a loan down for lack of the facts or simply fear of not understanding what they’re dealing with.  The truth is, Community Land Trusts have grown steadily in number and market share:

With affordable housing providers becoming scarcer, CLT’s will likely become a more important player in the Twin Cities.

Obtaining Fannie Mae backed financing on a Community Land Trust has many benefits over the alternatives (market interest rates and terms without pre-payment penalties vs. higher rates and balloons) but their approvals are demanding.  In addition to meeting all of the basic qualifying criteria for a Fannie Mae backed loan, an approval on a CLT loan is subject to addition steps and guidelines:

  • Single family homes, duplexes, townhomes and condos are the only eligible property types
  • All Community Land Trust mortgages must be manually underwritten
  • The Community Land Trust organization must have the capacity to administer leasehold mortgages
  • The Community Land Trust must have at least two years experience in successfully managing affordable housing
  • The Community Land Trust must have adequate and qualified staff to manage affordable housing
  • The lender must obtain evidence of successful performance of the Community Land Trust for the most current year
  • The lender must review the subject Community Land Trust’s ground lease to confirm that it is based upon either the National Community Land Trust Network Model Ground Lease or the Institute for Community Economics Model Ground Lease
  • The term of the real estate created by the ground lease must extend for at least five years beyond the maturity date of the mortgage
  • The appraisal for a CLT property is very unique and requires a sophisticated appraiser with familiarity in the Community Land Trust form of ownership

Dealing with these kinds of additional requirements demand specialized experience in your Realtor, loan officer, loan processor, underwriter, appraiser and title company.  These people are accessible and consequently, not being able to get a quality mortgage on a Community Land Trust should not be an obstacle or dissuade anyone from taking advantage of this valuable form of home ownership.