Location Efficient Mortgage
Encyclopedia
Location Efficient Mortgage (or LEM) is a mortgage
available to people who buy a home
in locations where they don't need to rely on automobiles as much or at all for transportation. Location efficient mortgages allow people to buy more expensive homes than they normally would be able by factoring in the money they'll save on transportation costs. As of April 2006, LEM's are available in Seattle, Washington
, Chicago, Illinois, Los Angeles, California
and San Francisco, California
.
The concept was developed by the Center for Neighborhood Technology
and the Natural Resources Defense Council
and is backed by Fannie Mae
.
. The cost of housing must not exceed 35% of the household’s income (Housing to Income Ratio), and the household's total debt
cost must not exceed 45% of the household’s income (Total Debt to Income Ratio). This is to ensure that after the mortgage is granted, the household will have the ability to pay for all other obligations.
In high density, transit
-rich environments, the cost associated with transportation is greatly reduced. This reduction is, for example, $350–$650 per month in Chicago, Illinois. When this extra savings is factored in, the Housing to Income Ratio can be as high as 39%, and the Total Debt to Income Ratio may be as high as 50% to qualify for a loan. In effect, it allows urban dwellers who depend less on automobile use to purchase a more expensive home.
Program advocates warn potential LEM participants that, while there is no limitation on the use or ownership of automobiles, this program does not lower monthly payments to the mortgage company, and that the increased purchasing power is granted based on the presumption that the household is actually taking advantage of reduced car use.
These loans are resalable on the secondary market
through the Federal National Mortgage Association
(FNMA).
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
available to people who buy a home
Home
A home is a place of residence or refuge. When it refers to a building, it is usually a place in which an individual or a family can rest and store personal property. Most modern-day households contain sanitary facilities and a means of preparing food. Animals have their own homes as well, either...
in locations where they don't need to rely on automobiles as much or at all for transportation. Location efficient mortgages allow people to buy more expensive homes than they normally would be able by factoring in the money they'll save on transportation costs. As of April 2006, LEM's are available in Seattle, Washington
Seattle, Washington
Seattle is the county seat of King County, Washington. With 608,660 residents as of the 2010 Census, Seattle is the largest city in the Northwestern United States. The Seattle metropolitan area of about 3.4 million inhabitants is the 15th largest metropolitan area in the country...
, Chicago, Illinois, Los Angeles, California
Los Angeles, California
Los Angeles , with a population at the 2010 United States Census of 3,792,621, is the most populous city in California, USA and the second most populous in the United States, after New York City. It has an area of , and is located in Southern California...
and San Francisco, California
San Francisco, California
San Francisco , officially the City and County of San Francisco, is the financial, cultural, and transportation center of the San Francisco Bay Area, a region of 7.15 million people which includes San Jose and Oakland...
.
The concept was developed by the Center for Neighborhood Technology
Center for Neighborhood Technology
The Center for Neighborhood Technology is a non-profit organization, headquartered in Chicago, Illinois, which is committed to sustainable development and livable urban communities. CNT, as an “innovations center for urban sustainability”, researches, invents, and tests urban strategies that use...
and the Natural Resources Defense Council
Natural Resources Defense Council
The Natural Resources Defense Council is a New York City-based, non-profit, non-partisan international environmental advocacy group, with offices in Washington DC, San Francisco, Los Angeles, Chicago, and Beijing...
and is backed by Fannie Mae
Federal National Mortgage Association
The Federal National Mortgage Association , commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise , though it has been a publicly traded company since 1968...
.
How it works
With traditional mortgages, there is a limit on how much money is available based on the purchaser's incomeIncome
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
. The cost of housing must not exceed 35% of the household’s income (Housing to Income Ratio), and the household's total debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
cost must not exceed 45% of the household’s income (Total Debt to Income Ratio). This is to ensure that after the mortgage is granted, the household will have the ability to pay for all other obligations.
In high density, transit
Public transport
Public transport is a shared passenger transportation service which is available for use by the general public, as distinct from modes such as taxicab, car pooling or hired buses which are not shared by strangers without private arrangement.Public transport modes include buses, trolleybuses, trams...
-rich environments, the cost associated with transportation is greatly reduced. This reduction is, for example, $350–$650 per month in Chicago, Illinois. When this extra savings is factored in, the Housing to Income Ratio can be as high as 39%, and the Total Debt to Income Ratio may be as high as 50% to qualify for a loan. In effect, it allows urban dwellers who depend less on automobile use to purchase a more expensive home.
Program advocates warn potential LEM participants that, while there is no limitation on the use or ownership of automobiles, this program does not lower monthly payments to the mortgage company, and that the increased purchasing power is granted based on the presumption that the household is actually taking advantage of reduced car use.
These loans are resalable on the secondary market
Secondary market
The page applies to the finanical term; For the merchandising concept, see Aftermarket .The secondary market, also called aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold....
through the Federal National Mortgage Association
Federal National Mortgage Association
The Federal National Mortgage Association , commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise , though it has been a publicly traded company since 1968...
(FNMA).