Author Archives: Tom Peterson

How To: Find Affordable Housing

Start by looking into government programs.


In most areas of the U.S., housing costs are rising faster than wages. To meet the federal government’s definition of housing affordability, costs should not exceed 30 percent of household income or 60 percent of the area’s median income. Looked at it this way, the issue of affordability becomes very personal. What may be affordable for some will not necessarily be affordable for all.

Financing a Home
Virtually all people purchasing homes are doing so with money borrowed from a bank or mortgage company. A mortgage is a legal agreement between buyer and lender that uses the house being purchased as collateral or security for the loan. Before lenders loan money for a house, they make sure that the buyer has enough monthly income to cover the costs of principal, interest, property taxes, and insurance (PITI). Most mortgage programs require that those payments not exceed 30 percent of the borrower’s monthly income. To keep the monthly payment affordable, a buyer might have to raise $25,000 or $30,000 for a down payment. For many first-time buyers, this kind of cash is out of reach.

Help Is Available
If you cannot find a home in your community that you can afford using traditional mortgage formulas, look into special programs to assist first-time homebuyers. A variety of programs have been spawned to help people get into home ownership. Some of the programs are federally sponsored, some are state-sponsored, and most rely on a mix of federal, state, and private funding subsidies to make them work.

Much of this assistance is tailored to people at or below the area median income (AMI). Some of the programs offer low-interest financing, down-payment assistance, or both. There are also programs designed to keep housing affordable by offering limited or shared equity clauses that restrict the future resale price of the home. Generally speaking, the more assistance one accepts, the more restrictions there will be on the terms of ownership or resale.

Get Prepared
Buying a first home takes a lot of work. Begin by getting the lay of the land, your own and that of the community where you wish to live. Start a first-home file for basic information, your financial records, and employment information. Learn as much as you can about the housing market in your area — read real estate ads, talk with real estate agents, and study the real estate transactions section of your local newspaper. Learn the terms and numbers. Know what homes cost in your target area, what your monthly income is, what your monthly financial obligations are, and how much you think you can afford. Start to reduce your monthly debt and open a savings account that is dedicated to your first home. Even if you only save a few dollars a month, you will be moving in the right direction.

Locate Your Resources
Not everyone can buy a home, but there are programs and services like the Section 8 federal housing subsidy program that assist low- and very-low-income people with housing costs. Section 8 vouchers have traditionally been used for rental housing, but can now be used to purchase a home. This Section 8 program is usually run through local or state housing authorities. Every region of the country and most states have programs to help first-time homebuyers. State housing finance agencies or a NeighborWorks office ( see below ) are good resources. If you are a veteran of the military, contact the Veterans Administration for the latest information on homeownership assistance.

Community land trusts (CLTs) put together packages of funding to help offset the cost of housing for low- and moderate-income families and individuals. These organizations develop perpetually affordable housing by limiting the resale price of the home if and when the homeowners decide to sell. These limited- or shared-equity clauses keep the house affordable for the next eligible buyer and preserve the original homeownership subsidy for the life of the home.

Know the Limitations
Most home-buying assistance programs have income limitations and are often reserved for people earning 80 percent or less of the area median income. Most programs also require enough income to make the monthly mortgage payments. Program staff can help you verify and maintain your eligibility for homeownership subsidies until a match can be made.

It is important to understand under what circumstances you might be required to pay back the subsidy. Employer-assisted housing programs, for example, may have a residency or employment requirement — to get housing help you may need to stay in the home and work for the company. With CLTs, the selling price of the home will be limited should you decide to move. The price limitation may be a predetermined fixed price, but is usually determined by a formula. Have any restrictions and formulas explained to you and get them in writing before you commit.

Resources: NeighborWorks
Chances are NeighborWorks supports a housing agency or neighborhood program in your community. This nonprofit agency was established by Congress in 1978 to build partnerships that result in affordable housing and homeownership for low-income community members.

NeighborWorks’ goal is to revitalize communities through homeownership, housing rehabilitation, housing vouchers, equity protection, minority homeownership, ongoing education about homeownership and care, community economic development, and aging-in-place solutions. The NeighborWorks network has more than 240 community-based programs and operates in all 50 U.S. states to create stable, sustainable communities.

Basement Remodels Add More Living Space

Increase basement space using new specialty products to add value to your home.

Photo: Flickr

America’s home improvement frontier is going underground with basement remodeling. Basement design has gone way beyond the second-class spaces and finishes of old. These spaces bring increased value, lifestyle enhancement, and expanded living to today’s homes.

Basement Space Is Found Space
Basements today are emerging as valuable found space and are serving vital roles as guest bedrooms, master suites, and home offices in addition to the more traditional role of family rec room. In fact, basement remodels account for an ever-growing chunk of the more than $200 billion per year spent on remodeling nationwide. And this despite the fact that, according to the National Association of Home Builders, only about 68 percent of American homes even have basements! Many of these new spaces feature eye-popping, award-winning designs. This trend is being driven by housing values.

Builders and homeowners alike are finding that utilizing basement space as living space represents real value. When you build an addition, you expand the footprint of your home by attaching new construction to your existing house. Additions entail excavation, foundation work, exterior walls, sheathing , siding, and roofing just to enclose the new space. In addition, you will have to wire, plumb, add heating and cooling, and complete the interior of the new addition. With a basement remodel, the space is already there so a higher proportion of your remodeling dollar can go into “The Three Fs”—features, fixtures, and finishes. The three Fs are the touches that can make any new space more useful, beautiful, and enjoyable—in other words, valuable.

Equity and Payback
Another aspect of value is equity and payback, or how the project will affect the immediate value of your home and any long-term payback for the project when the house is sold. These questions may be difficult to answer, but they should be considered before tackling any home improvement project. There are a lot of variables that come into play including location, market, quality of the design, materials, and workmanship. Getting the best value and the best payback hinge on finding the right balance for your specific needs and location. According to the 2010-11   Cost vs. Value Report, an annual study conducted by Remodeling Magazine in cooperation with the National Association of Realtors, very few of the most popular home improvement projects yield 100 percent cost recovery, with basement remodeling at just over 70 percent cost recovery as a national average.

Converting Basement Space
Many of the products on the market are designed to make basements more appealing and useable, which is why mid-to -high- range basement remodels are so popular. Homeowners and building codes demand adequate light and ventilation in any living space. There are several window-well products that allow for full-sized windows and some that are code-approved for egress or escape in the event of a fire or other emergency.

Bathrooms and wet bars are also top features requested by homeowners in their basement remodels. Basement bathrooms and sinks present a challenge since wastewater lines exit the house above the basement floor. There is plumbing equipment available to pump waste from basement bathrooms up to the main waste system, but beware—these systems can be costly, require high maintenance, and may even be prohibited in some situations. It’s best to check with a licensed plumber and your local building code official before proceeding.

Every basement should be evaluated for moisture and flooding, structural concerns, and radon. Invest in professional advice and remember that not every house is a prime candidate for basement remodeling.

Creating Affordable Housing

Together, developers and municipalities can overcome the challenges.

Affordable Housing


Since World War II, the federal government has had its hand in promoting and supporting affordable housing through GI Bills and low-interest financing. These policies and subsidies were very effective in helping returning GIs and other first-time homebuyers get into their first homes. But with rapid economic growth and the Baby Boom, traditional federal subsidies alone have not been able to keep up with the growing affordability gap. Families need safe and decent places to live. Communities need an adequate supply of housing, at all price levels, and businesses need housing that is affordable for their workforce.

Affordable to Buy
The federal government defines housing affordability as housing costs that do not exceed 30 percent of household income. Housing costs are defined as rent or principle, interest, taxes and insurance combined (PITI). If we assume you’re making the 2002 median income of $43,318 (U.S. Census), you would be spending no more than $1,083 per month on housing costs. Now, if we also assume that you are purchasing a home at the 2002 median price of $158,300 (National Association of Realtors), you would need to come up with a down payment of $28,890 to purchase that home and still meet the definition of “affordable.” Of course, there are other factors that influence this deal including mortgage rate, term (length) of the loan, points, and closing costs. Change any of these factors and your down payment or monthly payments could go up or down. And when you factor in points and closing costs, your total cash outlay at closing would be over $33,000! By the government definition, this home may be affordable to own, but with this much cash required up front, would it be affordable for you to purchase?

Affordable to Build
One major factor in affordability is the cost to produce housing. Builder groups often claim — and government statistics support these claims — that home building traditionally leads the nation out of recession. It’s no wonder when you consider that home building benefits not only the trades but also manufacturing, professional services, and even transportation. But the demand for new housing can cause shortages in labor and materials. Delays due to weather or permit issues also add to costs and these costs get passed on to the buyer. Builders of new homes typically operate on fairly narrow net profit margins of 5 percent to 10 percent, so even a small spike in costs can cut drastically into a builder’s profit and increase housing costs to buyers.

An experienced builder can help the homebuyer keeps costs down through careful design and material selection. This process is called “value-engineering” and, as a buyer, it is in your best interest to find a builder who thoroughly understands it. But while the building industry certainly benefits from innovations in materials and methods, the independent builder is generally not able to have much of an impact on overall housing affordability. Think of it this way: A $750,000 mansion, at its core, is built with essentially the same materials as a $125,000, three-bedroom ranch. It’s not just the finishes that make for the inflated price tag.

Bringing Housing Costs Down
One of the key ways to achieve affordability is to increase housing density. Land use regulations at the federal, state, and local levels can have a tremendous impact on housing affordability. Wetlands regulations, for example, take large tracts of land out of the housing market, reducing supply. Local zoning rules that require five-acre plots for each single-family home also add pressure to land supply. There are certain fixed costs to developing any parcel of land, including site planning and permits, roads, power, sewer, and water. All of these costs have to be included in the selling price of the housing that is built on the parcel. If zoning or other regulations limit the parcel to the construction of one house, all of those development costs will have to be borne by that single home, making the price go higher. If zoning regulations allow a higher density of housing—more houses per parcel—the builder can spread the land development costs over all of the housing units, so the same house would actually cost less to build and buy.

Housing Policy for Affordability
Local governments usually jump in when a shortage of affordable housing starts to harm the vitality of the community. In many areas of the country, essential workers such as police, firefighters, medical workers, and teachers cannot afford to live in the communities where they work. Some municipalities are now offering subsidies and other incentives to close the affordability gap and lure workers closer to their jobs. Other measures employed by local and state governments include housing affordability mandates and inclusionary zoning ordinances.

In Massachusetts, for example, Act 40B is a state statute that requires every municipality in the state to have a housing policy with the goal of having at least 10 percent of its housing stock affordable to people earning 80 percent or less of the area median income (AMI). Such measures may require that developers increase housing density to more efficiently use available land. Some rules require developers to make a certain percentage of the homes they build affordable. Act 40B was one of the first such statutes in the country and has been partially responsible for the creation of approximately 18,000 units of housing that meet this level of affordability. Maine followed suit with a similar law. Today there is a growing list of states, in every area of the country, with existing or pending legislation that promotes and/or mandates housing affordability.

There are also a number of nonprofit organizations and programs that specifically address housing affordability. Community land trusts (CLTs), for example, are usually private, nonprofit entities that secure grants and donations to purchase land and housing for long-term affordability. Most CLTs sell the houses but hold the land “in trust” through long-term land leases to the house owner. Most CLT leases require some sort of equity limitation so that when the house is sold, it will remain affordable to the next buyer. Other organizations include Habitat for Humanity, NeighborWorks, state housing finance agencies, and local housing authorities. One relatively new federal program, administered through local housing authorities, allows eligible renters to use their Section 8 housing vouchers to purchase a home. Local banks and mortgage lenders often have the latest information on loan programs for first-time buyers.

Case Study: Community Land Trusts Save Housing
The city of Burlington, a town of about 40,000, is Vermont’s largest city. Despite its stable economy and small-town charm, Burlington has its share of big-city problems: high rents, absentee landlords, aging housing stock, and wages that lag behind rising housing costs. In 1984 city leaders and housing advocates established the Burlington Community Land Trust (BCLT), the first municipally funded CLT. Today it is the largest CLT in the U.S. with over 2,500 members.

A CLT is a democratically controlled community organization that acquires land and buildings and holds the land in trust for the good of the greater community. In terms of affordable housing, this model removes the cost of the land from the housing-cost equation, thereby making the house much more affordable. Additionally, the land trust provides a long-term (usually 99 years), renewable lease to the homeowner. In exchange, homebuyers agree to limit the price of the home if and when they decide to sell it. In many cases, the CLT gets the first option to buy back the house at a formula-determined price. The homeowners get less equity out of the sale, but this limitation ensures that the house will be affordable for the next buyer.

On average a first-time BCLT home is affordable to people at 62 percent of the area median income. On resale, the average BCLT home is affordable to people earning 57 percent of AMI, but the sale brings owners a net equity gain of over $6,000.

Limiting equity may have been a radical idea 20 years ago, but the model has gone mainstream. When the Burlington Community Land Trust was established in 1984 there were only a handful of CLTs. Today there are over 160 in 34 states and others in Canada and the U.K.