Location Efficient Mortgage (or LEM) is a
mortgage
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any ...
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
Transport (in British English), or transportation (in American English), is the intentional movement of humans, animals, and goods from one location to another. Modes of transport include air, land (rail and road), water, cable, pipeline, ...
. 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 ( ) is a seaport city on the West Coast of the United States. It is the seat of King County, Washington. With a 2020 population of 737,015, it is the largest city in both the state of Washington and the Pacific Northwest region ...
,
Chicago, Illinois
(''City in a Garden''); I Will
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,
Los Angeles, California
Los Angeles ( ; es, Los Ángeles, link=no , ), often referred to by its initials L.A., is the largest city in the state of California and the second most populous city in the United States after New York City, as well as one of the world' ...
and
San Francisco, California
San Francisco (; Spanish for " Saint Francis"), officially the City and County of San Francisco, is the commercial, financial, and cultural center of Northern California. The city proper is the fourth most populous in California and 17th ...
.
The concept was developed by the
Center for Neighborhood Technology and the
Natural Resources Defense Council
The Natural Resources Defense Council (NRDC) is a United States-based 501(c)(3) non-profit international environmental advocacy group, with its headquarters in New York City and offices in Washington D.C., San Francisco, Los Angeles, Chicago, Bo ...
and is backed by
Fannie Mae
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...
.
How it works
With traditional mortgages, there is a limit on how much money is available based on the purchaser's
income
Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...
. The cost of housing must not exceed 35% of the household’s income (Housing to Income Ratio), and the household's total
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
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
Transit may refer to:
Arts and entertainment Film
* ''Transit'' (1979 film), a 1979 Israeli film
* ''Transit'' (2005 film), a film produced by MTV and Staying-Alive about four people in countries in the world
* ''Transit'' (2006 film), a 2006 ...
-rich environments, the cost associated with transportation is greatly reduced. This reduction is, for example, $350–$650 per month in
Chicago, Illinois
(''City in a Garden''); I Will
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, map_caption = Interactive Map of Chicago
, coordinates =
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, subdivision_name ...
. 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
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the Ne ...
(FNMA).
References
{{Reflist
External links
Institute for Location Efficiency
Mortgage
Fannie Mae
Public transport