Freddie Mac Guidelines: Community Land Trust Mortgage Eligibility

What Community Land Trust Mortgages Are

Community Land Trust mortgages help homebuyers purchase homes where the land stays owned by a nonprofit organization while you own the house itself. This arrangement keeps housing affordable by removing land costs from the purchase price.

Fannie Mae will purchase these mortgages from lenders, but only specific loan types qualify. The rules exist because CLT properties have unique ownership structures that create different risks compared to traditional homeownership.

Which Loans Qualify for Purchase

Fannie Mae accepts only conventional fixed-rate first-lien mortgages on CLT properties. Your loan cannot be an adjustable-rate mortgage, government loan (FHA, VA, USDA), or any specialty product.

Say you're buying a CLT home for $200,000 where the land trust owns the land worth $80,000 and you're purchasing the house for $120,000. Your mortgage must be a conventional loan with a fixed interest rate for the entire term.

Condominium units in CLT arrangements work differently depending on the type. Detached condominiums automatically qualify - these are single-family homes that happen to be legally structured as condos. If you're buying a traditional attached condo unit in a CLT, your lender needs prior written approval from Fannie Mae before closing.

When the Land Trust Is Also the Seller

CLT mortgages have a special exception to Fannie Mae's interested party rules. Normally, when someone provides down payment assistance and also sells you the property, Fannie Mae considers this an interested party transaction with strict limits on contributions.

Community Land Trusts can be both the subsidy provider and the seller without triggering these restrictions. The land trust might provide $15,000 in down payment assistance while also selling you the home, and this arrangement is perfectly acceptable.

This exception exists because CLTs are mission-driven nonprofits focused on maintaining affordable housing, not profit-maximizing entities trying to inflate sale prices.

Affordable Second Mortgages

Your CLT mortgage can include an affordable second mortgage provided by the Community Land Trust, but the second mortgage must meet specific requirements outlined in [[Section 4204.2(a)(i)(A)]].

These second mortgages typically have below-market interest rates or deferred payment terms to help with affordability. The land trust might provide a $25,000 second mortgage at 2% interest that doesn't require payments until you sell or refinance.

Loan Types That Don't Qualify

Several mortgage products cannot be purchased as CLT mortgages, even if the property itself would otherwise qualify.

Government-backed loans including FHA, VA, and USDA mortgages are ineligible. These programs have their own affordable housing initiatives and different risk profiles that don't align with Fannie Mae's CLT requirements.

Construction-to-permanent loans won't work because they involve building the home rather than purchasing an existing CLT property. The construction phase creates additional complexities that Fannie Mae doesn't want to manage in CLT transactions.

Renovation mortgages that finance both the purchase and immediate improvements are also excluded. If you need to renovate a CLT home, you'll need to complete the purchase first, then pursue separate renovation financing.

Manufactured Housing Restrictions

Most manufactured homes on CLT land cannot be financed through Fannie Mae's CLT program. The exception is CHOICEHome manufactured homes, which meet enhanced construction and installation standards.

Regular manufactured homes create title and collateral complications in CLT arrangements. The home might be personal property while sitting on land owned by a nonprofit, creating unclear ownership rights that complicate foreclosure procedures.

Documentation Requirements

Your lender needs the standard mortgage documentation plus CLT-specific paperwork. This includes the ground lease between you and the land trust, which defines your rights and obligations as the homeowner.

The ground lease typically runs 99 years and includes restrictions on resale prices to maintain affordability. Your lender will review these restrictions to ensure they don't create unacceptable risks for the mortgage investment.

You'll also need documentation of any subsidy or down payment assistance from the CLT. This includes gift letters, subsidy agreements, and proof that the assistance meets Fannie Mae's requirements for interested party contributions.

Why These Restrictions Exist

Fannie Mae's limitations on CLT mortgages reflect the unique risks these properties present. The split ownership between land and improvements creates complications if foreclosure becomes necessary.

The restriction to fixed-rate mortgages provides payment stability for borrowers who are often first-time buyers with limited financial reserves. Variable payments could create affordability problems that defeat the CLT's mission.

Government loan exclusions prevent overlap between different affordable housing programs that might have conflicting requirements or create excessive subsidies that distort local housing markets.

Common Complications

CLT properties sometimes have resale restrictions that limit your ability to sell at market value. While these restrictions maintain affordability, they can complicate the lender's collateral evaluation and recovery expectations.

Some CLTs require buyer approval for all sales, which could delay foreclosure proceedings if you default on the mortgage. Your lender will review these approval processes to ensure they don't create unacceptable delays.

Ground lease terms vary significantly between different CLTs. Some leases include automatic renewal provisions while others require renegotiation. Your lender needs to understand these terms to evaluate long-term collateral security.

The interaction between CLT subsidies and other down payment assistance programs can create complications. If you're receiving help from multiple sources, your lender must verify that the combined assistance doesn't exceed Fannie Mae's limits or create prohibited interested party transactions.

References

For the official guidelines, see 4502.3: Eligible and ineligible Community Land Trust Mortgages in the Fannie Mae Selling Guide.