Financing a home with Habitat for Humanity

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Habitat Board President, Eric Dickinson (center) with students from Carroll College. (Courtesy photo)

As Kootenai Valley Partners Habitat for Humanity approaches the summer building season and new home number 13, we get asked a lot of questions about how the financing works.

Homes are built with the family’s help and their investment of “sweat equity.” Upon completion, the homes are appraised and sold at “Fair Market Value.” A small down payment is required at closing.

Like every home- buyer, they have a mortgage plus escrow payments to cover insurance and taxes. One big difference is that Habitat for Humanity does not charge interest. That is a policy of Habitat for Humanity International and applies to all Habitat affiliates.

Different affiliates use different strategies to make the home affordable to the family. Kootenai Valley Partners provides two mortgages for the homeowner.

One covers what it cost to build the house. The second covers the difference between the appraised value of the house and what it cost to build it.

For example, a house appraised at $100,000 might have only cost $75,000 to build. The Habitat homeowner pays on the $75,000 mortgage. The other $25,000 is a “ghost” mortgage that is forgiven when the house is paid off.

If the house gets sold, that second mortgage has to be paid. Payments are made directly to Kootenai Valley Partners and become part of our ‘fund’ to build the next house.

In South Lincoln County, we have built 12 homes. Two homeowners have finished paying for their homes!

One family moved away and the house was sold on the open market. After paying the family their equity, the board used the money from that sale to purchase land for more homes.

Another family moved, but we were able to buy back the house – paying them their equity in it so they had a nest egg to buy a new home in their new community. We then repaired and refurbished the house and another family has partnered with Habitat and is buying the house.

Being the bank for the Habitat homes gives the Habitat board flexibility in dealing with a family who is struggling to make their house payment. After 25 years, we did have to foreclose on a family this past winter. This was a difficult decision and process. The good news is that we have selected a family to become the new homeowners!

Hannah James and her three children are anticipating moving into their home by the beginning of June. With the help of their friends and church family, they are busy getting the house repaired and renewed. The work got jump-started by a group from Carroll College who came to Libby for a servant trip during their (snowy) spring break.

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