The HomeBase Fixed Rate Appreciation Program was created to provide a long-term mechanism for implementing, supporting and providing funds for certain public purposes and benefits that derive from HomeBase’s community vision and goals. HomeBase is a Texas nonprofit 501(c)(3) tax-exempt corporation.
Why Fixed Rate Appreciation?
HomeBase, in conjunction with private and public partners, makes homes affordable to buyers now and into the future. In an effort to provide funding for long-term affordability, HomeBase utilizes a fixed rate appreciation approach which is secured by a second lien and purchase option.
This fixed rate appreciation model allows affordable buyers to build equity and realize value on their investment in real estate, while also allowing HomeBase to reinvest funds in the Affordable Homes Program for future use in serving more families.
Fixed Rate Appreciation Model
Included in the agreement with the HomeBase, is a designated appreciation percentage. Pending market conditions and along with the equity invested in the home, the homeowner will receive 2% simple fixed appreciation on their purchase price upon their sale of the home. The dollar amount of that appreciation depends on the original sales price of the home, the resale price of the home and the length of ownership.
When an affordable home is sold, payments are made in the following order (after closing costs):
- The remaining primary mortgage is paid.
- The owner is repaid the initial down payment and equity invested in paying down the primary mortgage.
- **The homeowner will receive 2% of the initial affordable sales price for each year they owned & occupied the property.
- **HomeBase is paid any remaining proceeds to re-invest in sustaining affordable homes.
**These additional payments are made only if the home appreciates beyond the original sales price.
How the Program Works
The amount of HomeBase’s contribution is established at the time of the initial purchase of the home at HomeBase. The amount is calculated by subtracting the fair market appraised value at the time of the initial sale from the actual initial purchase price of the home. When the home is resold, HomeBase’s contribution is recaptured from any gain, and any additional increase in equity is allocated as described above between the homeowner and HomeBase.
At the closing of the sale of the owner’s home to another buyer, the title company will be responsible for making sure that everyone is paid correctly. In accordance with the purchase agreement and the legal documents:
- The title company will first pay the transaction costs and then, out of the Funds from Resale, the homeowner’s primary mortgage.
- The title company will then pay the homeowner back its equity invested out of the Funds from Resale.
- Then the title company will pay the second lien held by HomeBase out of the Funds from Resale.
- The amount left over is the appreciation that will be shared between the homeowner and HomeBase.
The sharing of appreciation in many ways is like a partnership — HomeBase partners with the homeowner to buy the home. When the homeowner sells the home the profit is shared with HomeBase in exchange for the assistance received when the homeowner initially purchased the home.
The funds from resale of the home are defined as the greater of the actual sales price or the appraised value in order to determine the true value of the home. This helps ensure HomeBase receives its fair proportion of appreciation in connection with any sale, and helps prevent abuse of the Program.
Homeowners cannot rent their homes for investment purposes.
HomeBase has a First Right of Refusal to purchase the home. Should the homeowner need to sell it during the first year of occupancy, HomeBase’s purchase price is the amount that was paid for the property, the initial affordable price. After the first year of occupancy, HomeBase may repurchase the home at the then appraised value.
Refinancing (without HomeBase’s consent), renting out the house or defaulting on the primary mortgage may cause HomeBase’s contribution to become due and payable, and may also trigger HomeBase’s First Right of Refusal.