Mortgage Assistance | Silent-Shared Appreciation Loans | Amortized Loans
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Mission
To capitalize the investment fund for mortgage assistance and development to $5 million by end of 2009 and $10 million by 2011.
Overview
The average gap in La Plata County between what most families can afford and entry-level housing on the market is $50,000. The Homes Fund helps fill that gap. It is an investment vehicle that holds dedicated resources and capital for affordable housing. The Homes Fund provides mortgage and down payment assistance to individuals and families and offsets pre-development and land costs for development.
The RHA provides gap financing to fill the difference between entry level housing prices and the amount a household can afford on their own. We offer two financial loan products: shared appreciation-silent seconds and amortized loans.
Click here for more information on how to apply for our programs.
Silent-Shared Appreciation Loans
A silent-shared appreciation loan provides a homebuyer with a mortgage assistance that can act as a down payment.
Shared appreciation describes how home value gains will be split when an owner sells their home. Shared appreciation is a resale formula used in conjunction with a second mortgage or deed restriction in order to avoid windfall profit taking of affordable homes. By sharing appreciation, the homebuyer gets the proportion of the appreciation based on their first mortgage, market capital improvements and principle repayment; the RHA gets the second mortgage repaid in full plus a proportional percent of the equity gain based on market housing values.
Shared appreciation allows the public to invest in its community members. The family gets the benefit of getting into a stable home and building equity. The public benefits by recapturing actual dollars that can be reinvested into another family and home. Shared appreciation is a feature of a second mortgage that helps subsidy programs keep up in rapidly appreciating markets. If housing appreciates the second mortgage, investor receives a proportional share of that appreciation.
The shared appreciation model is the only mechanism that creates long term affordability and allows both the public agency and the family to capture value. Shared appreciation meets affordable housing goals:
- Provides public assistance to families and individuals who would otherwise not be able to afford housing in high priced markets.
- Helps people feel pride in where they live. Empowers people to create wealth by giving real ownership opportunities in an appreciating market.
- Stabilizes communities by integrating subsidized families with market homes
- Follows market trends. If the market rapidly appreciates the fund grows to provide more assistance. If the market softens is does not penalize owners.
The RHA provides amortized loans to households under 80% Area Median Income. Amortized loans are second mortgages that provide down payment and closing cost assistance. Loans have a 30 year term with 1% interest. Borrowers make monthly payments that generally range between $30-$60/month. In some cases the RHA may choose to defer payments for up to five years. The maximum amortized loan amount available is 8.5% of the purchase price. These loans are services by Funding Partners and funded by a $250,000 grant from the Colorado Division of Housing.
The Homes Fund is a revolving loan fund that will continue to grow as loans are repaid.
The following are projections for the sustainability of the investment fund:
Year 1 — Lending activities and recapture
- In Year 1 (2008) the fund provides 15 families down payment assistance to get into homes
- Average down payment amount is $50,000
- Average home value is $275,000 (also the amount considered affordable to families making under $75,000/year)
The total principle loaned on Year 1 down payments is $750,000 (15 x $50,000).
Year 2 — Lending activities and recapture
- In Year 2 (2009) the fund provides 20 families down payment assistance at an average amount of $52,000. The increase in number is attributable to increased marketing efforts and greater participation in programs (such as homebuyer training).
- The average down payment amount increases to $52,000 because we assume an increase of home value if 4% per year (average).
We assume annual inflation in the average down payment loan is 4%/year, the average increase in home value is 4%/year, and the annual appreciation in home value is 4%/year.
There are several factors that drive the longevity of the Homes Fund: how much families need to fill the gap to get into a home, the average cost of a home, expected average appreciation return (assumes a 7 year payback) for the fund and the owner.
Based on these assumptions and projections, after 20 years of the program the fund will recapture over half a million dollars in equity, while creating $2.9 million in additional wealth for community members and families. The value of the investment fund will be over $30 million in assets. And 415 families will have received $8 million in wealth.
Currently all RHA resources are invested in ColoTrust.
Housing Investment Fund Examples and Efforts
Colorado Housing Investment Fund
Santa Fe Community Housing Trust
La Plata Homes Fund, Inc.
