The Economics

How are the homes funded?

Habitat builds homes with volunteer labour and as much donated or cost-reduced material as possible. Fundraising takes place to help offset expenses of materials, services and land when they are not available through donations. Financial support is received from individuals, corporations, service groups and the faith community.

Mortgage payments from current homeowners are retained by the affiliate, which holds the mortgages, to fund future projects.

What does a Habitat house cost?

Currently, a three-bedroom Habitat house in Canada costs the homeowner between $110,000 and $140,000. Prices will differ slightly depending on location and the costs of land, labour and materials.

Habitat houses are affordable for low-income families because there is no profit included in the sale price and no interest is charged on the mortgage. The average length of a Habitat mortgage in Canada is 25 years.

Who Holds the Mortgages?

Mortgages are held by the local Habitat affiliate office until the mortgage is paid off.

How are donations distributed and used?

Donations, whether to a local Habitat affiliate or to the National Office, are used as designated by the donor. Gifts received by HFHC that are designated to a specific affiliate or project area are forwarded to that area. Any undesignated gifts are used where needed in Canada and for administrative expenses. HFHC's audited financial statements are available upon request.

How is the selling price determined?

The rule for determining the cost of site acquisition and development should be affordability to the low-income family, rather than market value. Canada Customs and Revenue Agency requires that a reasonable value for land costs be included in Habitat mortgages. The key to dealing with this issue is for affiliates to consistently apply the same method to all of their houses, so that each family is treated the same.

It is important to note that donations will vary from house to house. A major objective is to keep selling costs equitable for all families receiving comparable houses, regardless of the amount of donations for any given house.

How is this a hand up, not a hand out?

Habitat houses are sold to families, not given to them free of charge. In addition, families help to build their own home.

By building homes at low cost, requiring very little or no down payment, and not charging interest on the mortgage, Habitat for Humanity is able to provide an opportunity, or a "hand up", to buy a home for families that would not otherwise qualify for a conventional mortgage.

The revolving fund for humanity

The homeowners' monthly mortgage payments go into a fund that is used to build more homes. The more homes that exist, the more cash flow there is available for further building. This "revolving fund for humanity" fuels exponential growth in the number of houses that are built over time.

What happens if the family does not make their mortgage payments?

Habitat makes every effort to work with the homeowner families to avoid foreclosure through financial counseling, renegotiated mortgages, etc. Strategies such as payment plans and deeds in lieu of foreclosure are implemented when possible.

While foreclosure is the last resort, sometimes it cannot be avoided. Ignoring homeowners' delinquencies can be unfair to other homeowners.

What happens when income/financial position of families change?

The income of all Habitat homeowners is reviewed on an annual basis. If income increases, monthly mortgage payments are adjusted to remain at 30% of their monthly income. If income decreases, usually due to a temporary situation such as a job loss, similar adjustments may be made to maintain affordability during this period of decreased cash flow.

Habitat for Humanity is committed to educating and supporting partner families toward successful homeownership. This commitment has resulted in a low mortgage default rate of about 1% in Canada.

What if the family decides to sell their house at a profit, just months after they take possession?

The Habitat mortgage is designed to keep monthly payments low, encourage long-term commitment and prevent short-term profit. This is done by way of a second mortgage. The first mortgage reflects the actual cost of the house, which is usually far less than it's fair market value. The second mortgage reflects the difference between the actual cost and the fair market value. Upon full payment of the first mortgage, the second mortgage is forgiven. The value of the second mortgage also decreases gradually with time, usually beginning at the 12 year mark.

If a family were to sell their house in the early years of their mortgage (within the first 12 years) the outstanding second mortgage would then be payable.

Habitat for Humanity has the right to purchase the property if the homeowner wants to sell.