What Are Shared Equity Transactions
Shared equity transactions help moderate-income buyers purchase homes they otherwise couldn't afford. A qualified organization — like a community land trust or housing authority — provides a subsidy that reduces the purchase price. In exchange, you agree to restrictions on who can buy the home when you sell and how much you can sell it for.
Say a home appraises for $200,000, but a community land trust provides a $40,000 subsidy. You buy the home for $160,000. When you sell, the resale price formula might limit your sale price to preserve affordability for the next buyer. The land trust typically gets a share of any appreciation.
These programs target specific income levels and often require you to be a first-time homebuyer or meet other eligibility criteria set by the shared equity provider.
Two Types of Shared Equity Programs
Fannie Mae recognizes two main types of shared equity arrangements, and the differences matter for your loan approval and LTV calculation.
Community land trusts own the land under your home. You own the house but lease the land through a long-term ground lease. When you sell, the land trust has the right to buy the home back at a formula price, or you can sell to another income-qualified buyer at the restricted price.
Income and resale price restriction programs work differently. You own both the house and land, but deed restrictions limit who can buy the home and set maximum resale prices. A housing authority or nonprofit typically monitors compliance with these restrictions.
How LTV Calculations Work
The way your lender calculates your loan-to-value ratio depends on what happens to the resale restrictions if you default on your mortgage.
If the restrictions automatically end when the lender forecloses, your lender uses the "Affordable LTV" method. They divide your loan amount by the full appraised value, not the subsidized purchase price. This makes sense because the lender could sell the home at full market value after foreclosure.
Using the earlier example: You're buying a $200,000 home for $160,000 with a $40,000 subsidy. Your loan amount is $160,000. Under Affordable LTV, your ratio is 80% ($160,000 ÷ $200,000), not 100%.
If the restrictions survive foreclosure, your lender uses standard LTV calculation based on the lower of the purchase price or appraised value. The lender faces the same resale restrictions you do, so they calculate risk based on the restricted value.
Required Counseling and Education
You must complete counseling about the shared equity program at least 30 days before closing. This isn't the standard homebuyer education class — it's specific training about your resale restrictions.
The counseling covers how the resale price formula works, what happens when you want to sell, and your ongoing obligations to the shared equity provider. For community land trusts, this counseling must follow their Model Ground Lease requirements.
Your lender will need documentation that you completed this counseling. The shared equity provider typically provides a certificate or letter confirming your participation.
Eligible Properties and Loan Types
Most one- and two-unit primary residences qualify for shared equity financing. Condos and planned unit developments work, but co-ops have special rules. If you're buying a manufactured home in a condo or PUD project, Fannie Mae must approve the project first.
You can use shared equity financing for purchase loans and refinances. Your loan must be either fixed-rate or an adjustable-rate mortgage with at least five years of fixed payments before any rate adjustments.
Investment properties and second homes don't qualify. These programs exist to help people buy primary residences, not build investment portfolios.
Underwriting and Income Considerations
Your lender can approve your loan manually or through Fannie Mae's automated underwriting system (DU). Any monthly fees you pay to the shared equity provider count as housing expenses when calculating your debt-to-income ratio.
Say your community land trust charges a $50 monthly ground lease fee. Your lender adds this to your principal, interest, taxes, and insurance when determining if you qualify for the loan amount you want.
The shared equity provider's eligibility requirements are separate from your lender's approval. You might qualify for the mortgage but not meet the income limits or other criteria for the shared equity program.
Appraisal Requirements
Your appraisal must account for the resale restrictions, and the approach depends on your program type.
If restrictions end at foreclosure, the appraiser values the property as if no restrictions exist. They include a special statement in the appraisal report explaining they're valuing the property under a hypothetical condition without resale restrictions.
If restrictions survive foreclosure, the appraiser must consider how the restrictions affect value and marketability. They need to find comparable sales of properties with similar restrictions, which can be challenging in some markets.
Your lender must make sure both you and the appraiser understand the restriction terms before the appraisal begins. Confusion about restriction types can delay your closing if the appraisal approach is wrong.
Documentation You'll Need
Beyond standard mortgage documents, you'll need specific paperwork related to your shared equity program.
The shared equity provider must give you documentation proving they're an eligible provider under Fannie Mae guidelines. This includes their organizational structure, funding sources, and program administration details.
You'll need the ground lease (for community land trusts) or deed restriction documents that spell out the resale formula, income requirements, and other program terms. Your lender reviews these to understand the restriction structure.
Counseling completion certificates prove you received the required education about program terms. The shared equity provider issues these after you finish their counseling program.
Common Complications
Title insurance can create delays if the restrictions aren't properly recorded in public records. Your title company must confirm the restriction terms are clear and enforceable.
Appraisal challenges arise when appraisers can't find good comparable sales with similar restrictions. This is especially common in markets where shared equity programs are new or limited.
Program eligibility can change between your initial application and closing. If your income increases or family size changes, you might no longer qualify for the shared equity subsidy even though your mortgage is approved.
Some shared equity providers have waiting lists or limited funding. Getting mortgage pre-approval doesn't guarantee the subsidy will be available when you find a home.
References
For the official guidelines, see B5-5.3-03: Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
Fannie Mae and Freddie Mac update their rules several times a year. Get notified when changes affect your mortgage eligibility, required documents, or loan terms.
No spam · Unsubscribe anytime
Original Fannie Mae Guideline Text
B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements (02/05/2025)
Eligibility Requirements
Affordable LTV Calculation: Resale Restrictions that Terminate at Foreclosure
LTV Calculation: Resale Restrictions that Survive Foreclosure
Appraisal Requirements
Title Insurance and Delivery Requirements
Eligibility Requirements
The following table describes eligibility requirements for shared equity transactions.
Eligible shared equity providers
Shared equity providers must comply with the eligible provider requirements in
Required counseling
The shared equity provider must comply with the provisions of the Model Ground Lease relating to counseling the prospective borrowers.
The shared equity provider must have an established procedure that requires counseling or similar engagement with prospective borrowers to ensure such individuals are educated on the specific terms of the income and resale price restrictions, including the calculation that will be used to determine the maximum resale price. This counseling or engagement must be conducted at least 30 days prior to the closing of any purchase transaction. Examples may include, but are not limited to:
Eligible borrowers
Because of the affordable terms that they offer, shared equity programs include restrictions on borrower eligibility and on the resale price of the property. Eligible borrowers must satisfy the specific eligibility criteria set up by the shared equity program.
Eligible property and occupancy types
All loans secured by one- and two-unit principal residence community land trust properties are eligible for purchase by Fannie Mae with the exception of units in a co-op project, which are not eligible.
All manufactured homes are eligible; however, if located in a condo or PUD project, Fannie Mae PERS approval of the project is required. (See
)
Manufactured homes must comply with all applicable requirements in this Guide with the following exceptions:
As of the loan application date
All loans secured by one- and two-unit principal residence properties are eligible for purchase by Fannie Mae.
When the subject property is a unit in a limited or shared equity co-op project, the requirements in this Section B5-5.3, Shared Equity Transactions, do not apply. For limited or shared equity co-ops, the lender must ensure compliance with Chapter B4-2, Project Standards.
Eligible loans
Eligible loans include purchase and refinance transactions. Loans must be fixed-rate or ARMs with an initial fixed period of five years or more.
Underwriting considerations
These loans may be underwritten manually or through DU.
Any recurring monthly fees or expenses associated with the shared equity program must be included in the monthly housing expense for qualifying purposes. See
.
Affordable LTV Calculation: Resale Restrictions that Terminate at Foreclosure
When resale restrictions terminate automatically upon foreclosure (or the expiration of any applicable redemption period), or the recordation of a deed-in-lieu of foreclosure, the sales price is typically not a reliable indicator of market value for the property because the sales price does not include the subsidy from the shared equity provider. The appraised value is more indicative of the actual value of the property in the event of a foreclosure or acceptance of a deed-in-lieu of foreclosure (disregarding factors that may affect value after origination and prior to foreclosure). Accordingly, for these types of transactions, lenders must use the "Affordable LTV" calculation to determine LTV, CLTV, and HCLTV ratios.
The Affordable LTV calculation divides the loan amount by the appraised value of the property, rather than the lesser of the sales price or the appraised value. The following table provides an example of the Affordable LTV calculation method.
$200,000
$40,000
$160,000
$160,000
Affordable LTV Ratio (first mortgage loan amount divided by the appraised value)
80%
When using the Affordable LTV calculation, the lender must
for DU loans, enter "Affordable LTV" in the Product Description field in the online application, which will result in DU calculating the LTV, CLTV, and HCLTV ratios based solely on the appraised value for purchase transactions (and not the lesser of the sales price or appraised value); and
for all loans, use the appraised value to determine
the minimum down payment;
the borrower contribution, if applicable, that must be made from the borrower's own resources; and
the level of mortgage insurance required.
LTV Calculation: Resale Restrictions that Survive Foreclosure
When resale restrictions survive foreclosure or a deed-in-lieu of foreclosure, the lender must use the lesser of the sales price or appraised value of the property with resale restrictions when calculating the LTV, CLTV, and HCLTV ratios, which is the standard method of calculation. Fannie Mae requires use of the standard calculation on the lower value due to the presence of resale restrictions, which limit the property's sales price in the event of foreclosure or acceptance of a deed-in-lieu of foreclosure.
Note: This does not apply to loans secured by community land trust properties, which require the resale restrictions to terminate automatically upon foreclosure (or the expiration of any applicable redemption period), or acceptance of a deed-in-lieu of foreclosure.
Appraisal Requirements
For properties in a community land trust, the appraisal requirements can be found in
.
For properties with income and resale price restrictions, the following requirements apply:
In cases where the resale restrictions terminate automatically upon foreclosure (or the expiration of any applicable redemption period), or upon recordation of a deed-in-lieu of foreclosure, the appraisal should reflect the market value of the property without resale restrictions. The lender must ensure that the borrower and appraiser are aware of the resale restrictions and should advise the appraiser that they must include the following statement in the appraisal report:
"This appraisal is made on the basis of a hypothetical condition that the property rights being appraised are without resale and other restrictions that are terminated automatically upon the latter of foreclosure or the expiration of any applicable redemption period, or upon recordation of a deed-in-lieu of foreclosure."
In cases where the resale restrictions survive foreclosure or deed-in-lieu of foreclosure, the appraisal must reflect the impact the restrictions have on value and be supported by comparable sales with similar restrictions. The appraisal report must note the existence of the resale restrictions and comment on any impact the resale restrictions have on the property's value and marketability.
Title Insurance and Delivery Requirements
The following table describes title insurance and delivery requirements for shared equity transactions.
Title insurance requirements
The title insurance policy or an endorsement to the policy must expressly confirm all of the following:
The title insurance policy or an endorsement to the policy must expressly reflect the source and terms of the resale restrictions are included in the public land records so that they are readily identifiable in a routine title search.
Pre-delivery considerations
Prior to delivering the loan to Fannie Mae, the lender must confirm
Special feature codes and delivery requirements
The lender must include the following in the delivery data:
The lender must include the following in the delivery data:
