Community land trust homes: how they work and how to buy one

A community land trust is a nonprofit that owns land and sells the homes on it below market price. You buy the house, lease the land under it from the trust and pay a monthly fee. When you sell, a formula in your lease sets the price, so the next buyer, who also has a limited income, can afford it too.

How does a community land trust work?

A community land trust keeps the land and sells you only the house, which is why the price is lower. Grounded Solutions Network, the national group for land trusts, lays out three steps:

1. The trust builds or buys homes with a one-time grant of public or private money.
2. It sells only the house to a buyer with a low or moderate income who can get a mortgage, a loan to buy a home.
3. It keeps the land for future buyers. In return for the lower price, you agree to sell later at a price the next buyer can afford. That buyer must be under the trust's income limit, the most a household can earn and still buy there.

The U.S. Department of Housing and Urban Development (HUD) uses a definition in its rules when it funds land trusts. A land trust is a nonprofit, not controlled by a for-profit company, that holds land to keep housing affordable for low-income people for at least 30 years. It also keeps a right of first refusal: when you sell, the trust gets the first chance to buy the home.

What do you own, and what do you lease?

You own the house. The trust owns the land under it, and you lease the land.

• The lease is long. Grounded Solutions says land leases are often 99 years and can be renewed. Its model lease lets the owner renew for another 99 years.
• You pay a monthly fee. In the model lease, the fee pays for using the land plus a set amount saved for future repairs. Champlain Housing Trust in Vermont calls its monthly fee a membership fee and charges it for as long as you own the home, even after the mortgage is paid off. Add the fee to your monthly budget.
• You can use the land like any owner. Champlain says you can enjoy the land as long as you follow your town's rules. What the lease stops is selling the home outside the trust.
• You can get a mortgage. The house is yours, so a lender can give you a mortgage on it, and the model lease is written to allow that.

When HUD's HOME program, a federal grant to cities and states, helps pay for a land trust home, HUD's rule says the land lease must run at least 50 years.

How does the resale formula work?

The resale formula in your lease sets the highest price you can sell for, whether you sell back to the trust or to the next buyer. Grounded Solutions explains that most formulas give back what you paid, plus the value of major improvements you paid for, plus a share of any rise in value. A common share is about 25%.

In Grounded Solutions' example, an owner buys the house for $80,000, adds a bedroom worth $10,000, and later an appraiser, a professional who estimates what a home is worth, values the home at $120,000:

The owner sells for $97,500 instead of $120,000. That lower price is what lets the next buyer afford the home.

Champlain Housing Trust's formula works the same way. You keep all the value added by lasting improvements, such as a new bedroom, and 25% of any other rise in value. Before you renovate, ask the trust whether the work will count.

Who can buy a land trust home?

Each trust sets its own income limit. When HUD's HOME program helps pay for a home, HUD's rule says each buyer must have a low income and live there as their main home. HUD publishes that low income limit each year for your area and household size. It is about 80% of the area median income, the middle income where you live: half of households earn more and half earn less.

Trusts often check more than income. At Champlain Housing Trust, for example:

• your household can have up to $60,000 in cash and savings, not counting retirement accounts;
• there is no minimum credit score, but you must be able to get a mortgage, and most lenders have one;
• you need a letter from a lender saying how much it will lend you, called a pre-approval, before you can buy;
• it doesn't check your income after you buy, so you can keep the home if you earn more later.

How do you buy a community land trust home?

1. Find the land trusts near you. Grounded Solutions keeps a map of land trusts and similar programs across the U.S.
2. Go to the trust's information session if it holds one. Champlain Housing Trust, for example, considers you for a home only if you attended its information meeting within the past year.
3. Take a homebuyer class if the trust asks for one.
4. Get a pre-approval from a lender, ideally one on the trust's list.
5. Apply for a specific home before its deadline. Some trusts sell first come, first served, and others pick buyers by lottery, a random drawing. Champlain uses points: you earn them for a credit score of 720 or more, for finishing its classes and counseling, and for how long your application has been on file.
6. Plan for closing costs, the fees you pay on the day you sign the final papers. Champlain Housing Trust tells buyers to expect $10,000 to $12,000, including its own $1,500 fee.

Before you sign, ask the trust for the lease and the resale formula in writing, and ask how much the monthly fee is.

Where can you find land trust homes for sale?

Land trusts post their homes on their own websites, so start with the trusts on the map in step 1. Also search the homes for sale on our listings page, or open your state's page, such as Vermont, where Champlain Housing Trust works. Use our qualify check to see which homes fit your household's size and income.

If no land trust works near you, look at two similar ways to buy below market. Deed-restricted homes have a deed that limits the resale price. Inclusionary housing is homes a city requires builders to sell or rent below market.