Interesting situation - Habitat for Humanity house

[Brandon Holtzinger]

**If you don't want to read the whole thing the big question at the end is:

Is it wrong to pay off a Habitat for Humanity house as quickly as possible (about 5 years for us) then rent it out to help make money for us to buy a bigger house.

My girlfriend was a single mom before we met and she qualified for a Habitat for Humanity house. She lived in this house for 2 years before we met. I moved in with her a year ago. We have been renting out my old house and it has become our first investment property (hopefully of many).

It is a 3 bedroom 1 bath house. We have 3 kids between us. We have outgrown this house. Here is the tricky part of our situation. The house appraises for about $80,000. Since it is a habitat home her loan was for $40,000 at 0% interest. So, we owe about $35,000. The house has to be owner occupied while it is financed or Habitat can take the house back.

The only option I see is to get this house paid for as quick as possible and either sell it or rent it out. Do you see any other options? Is it wrong to rent out (and make money) on a Habitat for Humanity house after it is paid for. It is not her fault that her situation in life changed years after moving in.

[Lynne Carlson]

Habitat homes are a hand up, but designed to not be a windfall. Most Habitat affiliates have an agreement with the homeowner in which they get the house appraised on the day of closing when partner homeowner(s) purchase the house after building is complete. Habitat then holds a "silent" second mortgage (due and payable if the house is sold before twenty years usually) for the difference between the mortgage amount on which the buyer makes payments (30% of income at the time of closing is usually the mortgage, tax, and insurance figure, paid each month for 30 years with 0% interest) and the appraised value of the house at the time of purchase. So if the house appraised for $80,000 when she purchased it, and she had a 40,000 mortgage with monthly payments, they would have issued a silent mortgage (pay on this one with time instead of money) for the remaining 40,000. Those usually are 20 year second mortgages that go down very little at the beginning but are forgiven at the end of 20 years. If you stay in the house for 20 years, it's an amazing deal that helps low income people enjoy the security of home ownership. By that point, if you'd been making monthly payments, you would only have about 13,000 left to pay and it would be yours free and clear!

If you sold the house for $80,000 after only a few years though, and had already paid off your $40,000 mortgage early, you would still owe whatever was the balance on the $40,000 silent mortgage. That would pay back Habitat for the donated materials, volunteer labor, and Habitat money that helped make your mortgage affordable by only being half of what the house would have cost on the open market, If the market really took off and your house was worth $100,000 when you went to sell it though, that extra profit would be yours as the homeowner.

It does seem, though, that once you had paid back the 80,000 that was the market value of the house when it was purchased ($40,000 mortgage, and $40,000 silent mortgage), you would be free to rent out the house and no longer use it as a primary residence.