What is a 40B affordable home?

A 2 bedroom condo apartment in Boxborough came on the market this week at an astonishing low price: $77,224!

Did people wonder why the pricing was a little unusual- $77,224 and not $77,000 or $77,500? Not that it matters, because any 1 bedroom apartment in Boxborough that is asking below $100,000 is certainly worth a racing heart in this current market climate.

The price caught my attention the very morning it got listed. Unsurprisingly, my phone rang a couple of times with enquiries about it.

Here’s a screenshot of a portion of the listing:

All credits due to Listing Agent, Joan Meyer, of Barrett Sotheby's International Realty.

I’ve highlighted the pertinent parts of a 40B listing and will break down the details below.

What is 40B?

When I first heard from a developer that he had finished a 40B project, I thought 40B meant that it had 40 bedrooms. “That’s 10 4-bedroom single-family homes there!”, I marvelled.

Fast forward two years, I got wiser.

As coincidence would have it, I’m currently coordinating parts of a developer’s 40B project in Bedford! Pretty sure that without this exposure, I wouldn’t be able to write intelligently about a 40B or even answer a call about the unit above. I feel lucky, and grateful. :)

In my words, 40B is a short term for Chapter 40B, which is a law that allows development outside of the norm of a town’s bylaws, in exchange for a percentage of affordable housing. 

The definition according to Mass.gov® is that Chapter 40B is a state statute, which enables local Zoning Boards of Appeals to approve affordable housing developments under flexible rules if at least 20-25% of the units have long-term affordability restrictions.

I’d bore or confuse you if I go into the details of how it’s approved and governed. It isn’t necessary for regular homeowners - or even agents - to know the details unless you’re a developer who’s looking to piece together a 40B project. How a 40B project comes to be is a multitude of considerations through a long-drawn process. A rare animal in the world of real estate.

What regular homebuyers need to know when seeing a 40B listing, is that that price is going to be way lower than usual. It’s a form of subsidized housing and therefore meant to be an affordable purchase.

However, not everyone qualifies to buy a 40B. 

Who qualifies to buy a 40B

There are a number of criteria that determines qualification.

First and foremost is income. This isn’t fixed number that is pegged to that property; it changes depending on the number of persons intended to live there.

Don’t worry, you don’t have to go hunting for that income limit. The listing will surely include that information, like this DHCD flyer for qualification brochure that is attached.

Income limits:

• 1-person household: $56,800 

• 2-person household: $64,900 

• 3-person household: $73,000 

• 4-person household: $81,100 

• 5-person household: $87,600 

For example, if you’d live there with a spouse and a child, your total household number is 3 and therefore must not have an income that exceeds $73,000.

As an additional criteria, your household asset (cash, savings and checking accounts, stocks and bonds, cash value of retirement accounts, cash value of whole life insurance, etc.) must not exceed $75,000.

Side note, you should not assume that just because your income is slightly above the limits set for this property that you’d similarly be disqualified for another 40B unit. When that happens, go look for a unit in a more affluent area, like Boston city. Income limits are set based on a percentage of Area Median Income (AMI). In a more affluent area, AMI gets higher, and correspondingly so would income limits. A 3-person household limit for a similar standard (80% AMI) unit in Boston is $77,650 as compared to $73,000 in Boxborough.

Secondly, refer to additional terms and exceptions. In the case of this unit at 294 Codman Hill, only first-time homebuyers and households that have not owned a home in the previous three years are eligible, with the exception of the following:

• Displaced homemakers – An adult who has not worked full-time, full-year in the labor force for a number of years but has, during such years, worked primarily without remuneration to care for the home and family, and during this time owned a home with his or her partner or resided in a home owned by the partner;

• Single parents – where the individual owned a home with his or her partner or resided in a home owned by the partner and is a single parent (is unmarried or legally separated from a spouse and either has 1 or more children of whom the individual has custody or joint custody or is pregnant); 

• Household where at least one member is 55 years old or over; 

• Household that owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations; 

• Household that owned a property that was not in compliance with State, local, or model building codes and that cannot be brought into compliance for less than the cost of constructing a permanent structure. 

How to apply for a 40B unit

Where in regular home purchases the process starts with an Offer (where your Agent would have pre-filled the blanks and you’d just hit a button for an electronic signature), here, it starts with a lengthy application.

Don’t worry, the application is also attached with the listing.

Below, taken from DHCD information & application.

The image above is Page 3… the entire application runs to Page 14.

How is a 40B applicant selected

In this case, application is on a first-come, first-served sale basis.

Fill it out correctly, get your agent to double-check to make sure that all documents are in place and send ASAP! Send it to Nancy@MetroWestCD.org, which is not the email address of the listing agent, but rather the contact at Metro West Collaborative Development.

Metro West Collaborative Development is the Monitoring Agent. The Monitoring Agent is the party that goes through documents and does the background checks to ensure that information is accurate and compliant with 40B guidelines.

While this is on a first-come, first-served basis, in other circumstances - like the 40B in Bedford that I’m working on - it would be on a lottery basis. This means that the developer would have selected a company (Lottery Agent) that would collect all the pre-qualified applications from the Monitoring Agent, and in turn run a lottery to decide who gets to purchase.

Can a 40B property be sold at market value?

No.

The deed to the property has a restriction terms on resale price. Specifically,

Screenshot from Southern Middlesex Registry of Deeds, Book 52221, Page 109.

Confused?

Again, don’t worry. The resale price will be duly calculated by the Monitoring Agent.

Do 40B properties make financial sense?

Yes! If you qualify, you get to belong to a town and tap into its resources and ecosystem at a lower financial cost of entry than others. I think affordable homes are an important piece of adding diversity to a town and a means to allow opportunities to trickle down the income strata.

For the fact that it’s deed restricted, 40B properties aren’t meant to make financial sense in the form of value appreciation. For perspective, this unit was purchased in 2008 for $60,000. 11 years later, it’s selling at $77,224. A comparable 2 bedroom property in the same condominium compound (276 Codman Hill Rd - Unit 21A) sold at $132,700.