What Are Shared Equity Programs
Shared equity programs create affordable homeownership opportunities by subsidizing the purchase price for income-qualified buyers. In return, buyers agree to restrictions on future sales that keep the home affordable for the next buyer.
Think of it this way: A nonprofit organization helps you buy a $400,000 home for $320,000. You get immediate affordability, but when you sell, the organization gets a share of any appreciation to help the next buyer. This recycling of the subsidy keeps homes affordable over time.
The programs work by making a one-time investment in each property. They subsidize the first buyer's purchase price, then use their share of future sale proceeds to help subsequent income-eligible buyers afford the same property.
Community Land Trusts
Community land trusts take a unique approach to affordability. The trust purchases homes in the community, then sells the house to income-eligible buyers while keeping ownership of the land underneath.
As the homeowner, you own your house but lease the land through a long-term ground lease. Your monthly ground rent stays affordable, and the lease includes restrictions on future sales prices and buyer income levels.
Say you buy a home in a community land trust for $250,000. You own the house, but the trust owns the land and charges you $200 per month in ground rent. When you sell, the trust's ground lease limits how much you can ask for the house, ensuring the next buyer can afford it.
The ground lease typically runs for 99 years and transfers automatically to new homeowners. The affordability restrictions remain in place throughout the lease term.
Income and Resale Price Restrictions
These programs combine two key elements: limits on who can buy and limits on sale prices. Both restrictions work together to maintain affordability over time.
Income restrictions ensure only qualified buyers can purchase. Resale price restrictions cap how much you can sell for, often using a formula based on area median income or limiting annual appreciation to a set percentage.
For example, a program might limit resale price increases to 3% per year or require that the sale price remain affordable to households earning 80% of area median income. Some programs give the original subsidy provider a right of first refusal when you sell.
These restrictions are legal rights that bind current and future property owners. They stay with the property deed until formally removed or until they expire according to their own terms.
Required Documentation
Your lender needs specific documents to verify the shared equity arrangement and ensure Fannie Mae eligibility:
- Copy of the shared equity agreement or deed restrictions
- Ground lease documents (for community land trusts)
- Resale restriction documents showing terms and duration
- Income certification from the shared equity provider
- Legal opinion confirming the arrangement meets Fannie Mae requirements
The lender must verify that any arbitration clauses in the shared equity agreement become void if Fannie Mae purchases the loan. This protects your rights as a borrower while allowing voluntary dispute resolution between you and the shared equity provider.
For community land trusts, the lender needs the ground lease terms, including rent amounts, lease duration, and any renewal options. The lease must be long enough to provide security for the mortgage term.
Special Appraisal Requirements
Properties in shared equity programs require specialized appraisal approaches because traditional comparable sales may not reflect the restricted market.
The appraiser must understand and account for the resale restrictions when determining value. They need to use comparable sales from similar restricted programs or make appropriate adjustments for the limitations on future sale prices.
For community land trusts, the appraiser values only the improvements (the house), not the land, since you don't own the land. This creates a different valuation approach than typical fee-simple ownership.
The appraisal must clearly explain how the restrictions affect value and marketability. See B4-1.4-06: Community Land Trust Appraisal Requirements for detailed community land trust appraisal requirements.
Why Fannie Mae Allows These Programs
Fannie Mae supports shared equity programs because they expand homeownership opportunities for moderate and low-income buyers while maintaining long-term community affordability.
The programs reduce default risk by ensuring buyers can afford their payments and by providing ongoing community support. The resale restrictions also help stabilize property values in the community.
From an underwriting perspective, these programs often come with buyer education and ongoing counseling, which can improve loan performance. The income restrictions ensure buyers meet affordability standards.
Common Complications
The biggest challenge is understanding exactly what restrictions apply and how long they last. Some restrictions expire after a set number of years, while others run in perpetuity or until specific events occur.
Arbitration clauses can create problems if they don't include the required Fannie Mae language. The shared equity agreement must specify that arbitration requirements become void if Fannie Mae purchases the mortgage.
Appraisal challenges arise when appraisers aren't familiar with restricted properties. Finding appropriate comparable sales can be difficult, and some appraisers may not understand how to value improvements separately from land in community land trust situations.
Title issues sometimes emerge when the restrictions aren't properly recorded or when previous owners didn't comply with program requirements. Your lender needs to verify that all restrictions are properly documented and enforceable.
What Happens at Foreclosure
Resale restrictions typically terminate at foreclosure sales or when the lender accepts a deed-in-lieu of foreclosure. This protects the lender's ability to recover their investment.
However, community land trust ground leases may have different provisions. The trust might have rights to purchase the improvements at foreclosure or work with the lender on alternative solutions.
Your lender must understand these provisions before closing to ensure they can exercise normal remedies if needed. The shared equity provider should provide clear documentation about what happens in default situations.
References
For the official guidelines, see B5-5.3-01: Shared Equity Overview in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B5-5.3-01, Shared Equity Overview (02/05/2025)
Overview
Shared equity programs, sometimes called "below-market programs," create long-term affordability by both limiting income eligibility and imposing a maximum resale price (or a resale formula applies that limits the homeowner's proceeds upon resale). Shared equity providers typically make a one-time investment in a property by subsidizing the sales price for the first buyer and recycling the subsidy for subsequent, income-eligible buyers of the same property. In exchange for purchasing a home below market value, the homeowners agree to restrictions on the future sale of the home, including limitations on sales price or proceeds that maintain affordability for the next buyer.
Loans originated in connection with the following shared equity programs are eligible for purchase by Fannie Mae:
community land trusts,
income and resale price restrictions,
limited or shared equity co-ops.
It is against Fannie Mae policy to compel borrowers to participate in arbitration to resolve disputes regarding their mortgage loan. See B8-3-02, Special Note Provisions and Language Requirements. Similarly, Fannie Mae will not purchase shared equity loans where the borrower is required to submit to arbitration to resolve disputes with the shared equity program unless the mandatory arbitration provision provides, or is amended to provide, that, in the event of a transfer or sale of the related mortgage or an interest in the related mortgage loan to Fannie Mae, the mandatory arbitration clause immediately and automatically becomes null and void and cannot be reinstated. This does not prohibit the borrower and the shared equity program from engaging voluntarily in arbitration, mediation, or other alternative methods of dispute resolution.
Note: This topic focuses on community land trusts and income and resale price restrictions. For information on limited or shared equity co-ops, see
Community Land Trusts
Community land trusts preserve long-term affordable housing by purchasing homes in their communities, then selling the homes to income-eligible buyers while retaining ownership of the land. The homeowners lease the land from the community land trust using a long-term ground lease with affordable monthly ground rents. The ground lease includes provisions that preserve long-term affordability, including restrictions on the future sales price of the home and income levels of future homeowners.
Income and Resale Price Restrictions
Resale restrictions are a right in perpetuity or for a certain number of years and are binding on current and future property owners. They remain in effect until they are formally removed or modified, or terminate in accordance with their terms, such as at a foreclosure sale or upon acceptance of a deed-in-lieu.
Income and resale price restrictions help maintain long-term affordability for shared equity programs. These programs include both an income and a maximum resale price restriction that effectively subsidize the sales prices for income-eligible buyers, and in exchange for the subsidy, the buyers agree to resale restrictions that limit the future sales price of the home to preserve affordability for future income-eligible buyers.
For information on other types of resale restrictions, see B5-5.2-01, Loans With Resale Restrictions: General Information and B5-5.2-02, Loans with Resale Restrictions: Eligibility, Collateral and Delivery Requirements.
