How Does CLT Homeownership Work?
A Community Land Trust (CLT) establishes initial affordability by removing the market value of the land from the mortgage equation. For example, a CLT could purchase an existing owner-occupied home, which is for sale on the open market and then sell the home to a low-to-moderate-income household. The CLT retains ownership of the land and enters into a 99-year ground lease with the leaseholder-homeowner.
The result in removing the market value of the land from the mortgage equation is a lower, more affordable monthly payment of principal and interest. In addition, it results in a lower down payment and closing costs.
A CLT ensures permanent affordability of the home through two provisions found in the Ground Lease.
The first is a pricing formula that provides the owner with a fair amount of equity, while ensuring the sale price for subsequent low-to moderate-income households is affordable.
The second provision requires the homeowner to sell either to another low-to-moderate-income household or to the CLT. In addition, the provisions ensure the home continues to be affordable with each sale.
A CLT leaseholder-homeowner receives benefits similar to non-CLT homeowners such as the ability to build equity, the federal mortgage interest and property tax deduction and the ability to pass on the lease interest and home to their heirs.