Habitat offers an affordable, zero interest mortgage based on the homeowner's income.
Once the home is finished and the future homeowner has completed their obligations (including sweat equity hours, trainings, and $1000 saved towards closing costs), Habitat will prepare to sell the home to the future homeowner.
The home will be appraised by a certified professional to determine its value. The homeowner will receive a copy of the appraisal. The homeowner will secure homeowner’s insurance. Before the final closing date Habitat staff will meet with the future homeowner to ensure all elements are in place, to verify the mortgage amount, and to walk the homeowner through the paperwork associated with sale of the home.
At closing (purchase of the home), the homeowner and Habitat staff will meet at a local escrow company. The escrow company will set up an account to manage the mortgage, property tax, and homeowner insurance payments in one monthly payment. The first year of insurance and taxes will be included in the escrow account.
Habitat has a two-tier mortgage. The 1st mortgage is set so that the monthly payment equals 30% of the household’s monthly gross income over a 30-year mortgage. Interest is 0% so long as the note is current.
For example, if the household earns $17,424 (30% of Area Median Income for a two-adult household in 2021), the monthly income is $1,452, and 30% of that amount is $435.60. This number would be the monthly mortgage payment. (Property taxes, homeowners insurance, and utilities would be an additional cost.)
Multiplying $435.60 times 12 (months in year) and by 30 (years in the note), we arrive at $156,816 for the total first mortgage. Note, if the appraised value is less, that amount will be selected instead.
A 2nd mortgage will cover the difference between the appraised value of the home and the 1st mortgage. For example, if the home’s appraised value is $250,000 and the 1st mortgage is $156,816, the 2nd mortgage would be $93,184. This is called the “Silent Second” meaning the homeowner does not make monthly payments on this mortgage.
If the Habitat homeowner sells the home or if title is transferred in some other way (for example if the homeowner passes away and the home is transferred to heirs) the balance of the 1st and the entire 2nd mortgage must be paid to Habitat.
When that happens, Palouse Habitat and the homeowner share 50/50 in any appreciated value (appreciated value is any increase over the initial total value of the home). If the home decreases in value, the homeowner is responsible for any amount due to Habitat.