Do you want a home? No problem, we’ll set up a mortgage. But first, that’ll be $400,000.
This is the reality that prospective homeowners in the Bay Area face.
But let’s slow down a second and work through the basics. Homes are expensive, and most of us can’t afford to pay the whole cost when we want to move in. There are two main components that finance the purchase of a home: a down payment and a mortgage.
The mortgage is a home loan from the bank. The amount of the mortgage is the difference between the down payment and the cost of the home. Mortgages are typically paid off over 15 or 30 years via monthly payments that are a mix of interest and principal. Homebuyers must therefore limit the amount of the mortgage to the amount that they—and the bank—believe they can afford to pay on a monthly basis out of their income. This is the income piece of the puzzle.
But, we need to put some money down. This is the wealth piece of the puzzle.
The down payment usually ranges from 3-20% of the actual cost of the house. If you do 20% or more, you avoid having to pay private mortgage insurance. This is an insurance policy that the lender makes you get because they’re worried that if your down payment is under 20%, you might not have all that much capital, and your mortgage might be a risky loan. In other words, they don’t trust you and want a safety valve if things go south. So, 20% it is.
Bay Area housing is super expensive. For example, the median sale price in Redwood City is roughly $2 million. Hence the $400,000 down payment: 20% of $2 million.
This amount of money is bonkers. Frankly, most pastors don’t have that kind of cash—i.e., wealth. That’s where an equity share comes in.
Don’t freak, we’re going to break it down again.
Have you ever had that awkward moment when you’re at the cashier and you realize you’ve come up short? I hope you’ve had that warm feeling when someone behind you walks forward, hands you the $1.50 you were short by, and says, “I got it.” An equity share is obviously more complicated, but it’s along the same lines. Someone recognizes that you don’t have the money needed for the down payment and comes alongside you to help pay it. Now unlike the angel behind you at the market, in an equity share, you are not given the money. You are allowed to use it. You may be wondering, why would someone let you use their money? Historically, houses in the Bay Area increase in value over time, so participating in an equity share is analogous to buying a stock in a company you think will continue to perform well. This ‘someone’ is actually an investor handing over some money because they are hoping to get even more money at a later date when you sell the home. Well, that and they believe in your amazing ministry and want to ensure you stick around.
Equity shares are super important for people like pastors, who just can’t afford to accumulate enough funds for a down payment, even if they can qualify for a mortgage. This is particularly true for pastors in high-cost housing markets like the Bay Area, pastors from low-income congregations, and pastors from marginalized backgrounds. Many groups, most notably Black Americans, have been historically blocked out of the wealth accumulated through homeownership. This makes something like a down payment even more out of reach.
So how does this whole equity share thing work? The pastor buys a home using down payment funds from equity share investors. Investors are usually congregations or a collection of individuals in the congregation. The pastor gets a mortgage on the market. The pastor and the investors agree to share in the appreciation of the home when the equity share concludes. There are many considerations involved in this: how to structure the exits, how to apportion appreciation, who pays closing costs, how to value and pay for renovations or repairs, etc.
This is all rather complicated, and Aslan Housing Foundation knows it. We’re a team of experts dedicated to guiding pastors on the path to home ownership. We’re here to help every step of the way.
Aslan recommends churches have a Housing Policy in place before funding an equity share. This Policy is built on transparency and fairness. It aims to make the funding of housing more attractive to the congregation and to boost staff morale so folks besides the Lead Pastor see a pathway to homeownership.
So, get to it. If you’re a church lay leader or a pastor, visit aslan.org to get started.