Cohousing-L Mailing List: RE: residents with financial problems

[Rob Sandelin (robsan]

Ray & Maria Gasser, Ecovillage at Ithaca, NY asked about structures for 
helping residents buy in.]


This is a hard place to be.  Winslow Cohousing, which is organized as a 
Co-op, had to evict someone who wasn't able to pay her mortgage.  It 
was not a happy situation although I understand it all ended amicably 
enough.  At Sharingwood we have some interpersonal problems with bad loans.

One of the chronic problems in cohousing is idealism vs. financial 
reality. Lots of people are idealistically into community, they can't 
afford to live in cohousing.  The longer a person has put energy into a 
particular endeavor, the more connections they make with future 
neighbors, the harder it is to face the reality.  People will want to 
believe they can stay in, long after the costs have gone over their 
heads.  When the real financial requirements hit you is at bank loan 
qualification time.  Groups lose people here because the bank says uh 
uh, this person is not a good loan risk.

As part of new member orientation it would be a good idea to 
pre-qualify members before the bank does, so those unhappy surprises 
don't hit you in the gut right when you need pre-sold units the most.

Having said that, how much you can subsidize a member is up to the 
group.  I know I benefited from having a short term bridge loan of 
$10,000 from another member as I was building my house. She didn't even 
charge me interest.  I also know that the worst worst interpersonal 
problem with have is because of loans which have not been repaid and 
some other financial difficulties.  These are private, personal loans.  
I have no idea about using official group funds to subsidize a member.  
Not allowed in our state under our condo declarations.  Your state may 
have different rules.

If the group, or an individual within the group is going to help out 
financially, do so well before the mortgage loan application process 
(like 5-6 months if possible).  The bank is going to question savings 
which suddenly appear in an account. You can privately loan money to be 
used for a downpayment, but the applicant has to claim that money is 
personally earned savings (a lie).  If you just loan the person the 
money for a downpayment the bank considers that a liability, not an 
asset and it does not help the applicant.  Banks sometimes will take a 
cosigner on a mortgage but this is becoming more difficult and in a 
loan market which views anything other than traditional mortgages with 
a critical eye, it would be an exceptional bank which would do this for 
cohousing.

Also note, to qualify for a mortgage you often have to show evidence of 
stable work history and income tax returns.  They take a percentage of 
your total earned income (2.5 times your annual income is common) as 
the maximum they will loan.  So if you apply for a $100,000 loan you 
will need a gross income of $40,000 a year to qualify.

One of the ongoing discussions at Sharingwood is do we as a group want 
to subsidize unit ownership to allow someone without the income needed 
to buy a unit at market rate to live here.  This entails the 
organization as a whole buying and developing one or more units and 
selling it below cost, something which is noble but financially dubious.

Good luck

Rob Sandelin
Sharingwood