Community Land Trust Mortgages: How Financing Works on CLT Properties

Community Land Trusts (CLTs) are nonprofits that hold land in perpetuity while allowing homeowners to purchase the structure above it. The goal is permanent affordability: CLTs use resale restrictions to keep homes affordable for future buyers. For MLOs, CLT properties require navigating a unique ownership structure that many conventional lenders do not accept.

How the CLT Structure Works

When a buyer purchases a CLT home, they receive a deed to the structure but not the land. The CLT retains ownership of the land and enters a 99-year ground lease with the homeowner. The ground lease specifies the homeowner's rights to use the property and the resale formula that limits appreciation to maintain affordability for the next buyer.

The ground lease is the document that most affects mortgage eligibility. Lenders must be comfortable with the ground lease terms, particularly provisions around their rights if the borrower defaults; because the CLT owns the land, standard foreclosure processes are modified.

Mortgage Eligibility on CLT Properties

Fannie Mae and Freddie Mac have both published guidance permitting conventional financing on CLT properties when the ground lease meets specific requirements. FHA and VA also have CLT eligibility standards. Not all lenders are familiar with or set up to process CLT loans even when their guidelines technically allow them.

• ✦The ground lease must be for at least 35 years beyond the mortgage term under Fannie Mae guidelines
• ✦Lenders must have the right to cure a borrower default and acquire the leasehold interest through foreclosure
• ✦The ground lease must permit assignment to the lender or a subsequent purchaser at foreclosure
• ✦Resale restrictions must be consistent with program requirements and cannot unreasonably impede the lender's ability to recover collateral value
• ✦Some CLTs have worked directly with lenders to create approved lease forms that satisfy secondary market requirements

Finding CLT-Experienced Lenders

CLT lending is a specialty. Many local and regional community development financial institutions (CDFIs) have established CLT programs specifically because they have a mission alignment with affordable homeownership. Fannie Mae's Community Seconds program can also be layered with CLT purchases where down payment assistance is involved.

State housing finance agencies (HFAs) in states with active CLT ecosystems, including Vermont, Colorado, and several Northeast states with mature CLT programs, often have established relationships with CLT-friendly lenders and can be a referral source for MLOs entering this space.

What MLOs Need to Review

• ✦Obtain a copy of the specific CLT's ground lease early; lender review of the ground lease is required before underwriting
• ✦Confirm whether the CLT's resale formula has been pre-approved by the lender or their secondary market investor
• ✦Clarify the appraiser's scope: CLT appraisals must address the leasehold value, not fee simple value
• ✦Understand any income limits or buyer eligibility requirements the CLT imposes; these affect who the lender can lend to
• ✦Confirm whether the title company has experience with leasehold title policies, which are required on CLT properties