Deed-Restricted Housing: Who Qualifies and the Equity Trade-Off

Deed-restricted housing is real property carrying legally binding conditions recorded on its deed that limit how it can be used, priced, or resold. The most common purpose is keeping the home affordable long after the first sale: the deed might cap the future resale price, require every buyer to fall under an income limit, and require the owner to live there as a primary residence. Because the restrictions are recorded against the property itself, they transfer with the title and bind every future owner for the life of the restriction.¹

How the Restrictions Attach to the Property

A deed restriction is a type of covenant that “runs with the land.” The obligation sticks to the property, not to any individual owner. If you buy a restricted home, you inherit the same rules the previous owner accepted, whether or not you noticed them at closing.¹

Local governments, housing authorities, nonprofits, and community land trusts create these restrictions and record them alongside the deed at the county. One of those entities also oversees compliance for the entire life of the restriction. Duration varies: some programs run 30, 50, or 99 years; some are recorded in perpetuity; and some reset the clock every time the home is sold, which effectively makes them permanent.

Community land trusts take a slightly different approach. You buy the house, but a nonprofit trust keeps ownership of the land underneath. You lease the land on a long-term ground lease, often 99 years and renewable, at an affordable rent. Because you’re only buying the structure, the price is well below the open market, and the ground lease carries its own resale cap so the next buyer gets the same deal.²

What the Restrictions Require

Most programs stack several restrictions on the same property. A few show up almost every time.

A resale price cap sets the maximum price at which you can sell. The formula is written into the deed. Some programs use a fixed annual percentage increase, some tie the price to an index like the consumer price index or Area Median Income, and some allow a set share of the home’s appraised market value at resale. The point of the cap is to keep the home reachable for the next income-qualified buyer.

Income eligibility applies to whoever buys next. The deed typically requires that any future buyer’s household income fall below a set threshold, often 80% of Area Median Income.

A primary residence requirement means you have to live in the home. Renting it out, using it as a second home, or leaving it vacant violates the restriction.

Refinancing limits are common too. Freddie Mac, for example, will only purchase a cash-out refinance loan on a deed-restricted property if the program administrator signs off on the transaction.³

Federal HOME Investment Partnerships Program funds bring their own layer. If HOME money helped a buyer purchase the home, the property has to stay affordable for a minimum period tied to the subsidy amount: 5 years under $25,000, 10 years for $25,000 to $50,000, and 15 years above $50,000. During that window, the local program enforces either resale restrictions (the home must go to another income-qualified buyer at a restricted price, with the seller getting a fair return on investment) or recapture provisions (the local government takes back some or all of the subsidy from the sale proceeds if the owner sells or moves out early).⁴

Who Qualifies

Each program writes its own rules, but a few criteria appear almost everywhere.

Household income within a set range, usually expressed as a percentage of Area Median Income. HUD publishes AMI figures annually by metro area and county, broken down by household size. Most deed-restricted programs target households earning between 30% and 80% of AMI.⁵⁶
Household size, which adjusts the income limits. HUD’s methodology adds 8% of the four-person income limit for each member beyond eight.⁶
First-time buyer status, often defined as not having owned a home in the past three years.
Local residency or employment in the jurisdiction, or membership in a targeted group like teachers, first responders, or veterans.

Finding a Unit and Applying

Deed-restricted homes don’t show up on the usual real estate sites with a helpful label. Start with your local housing authority or the city or county housing department, which maintain lists of available units and waitlists. Nonprofit housing organizations, Habitat for Humanity affiliates, and community land trusts are other common sources, and many run online portals for searching properties and submitting applications.

Applications are document-heavy. Plan to provide pay stubs, bank statements, tax returns, and verification of household members, because programs confirm both income and assets. Some programs also require a homebuyer education course before closing. Demand almost always exceeds supply, so waitlists are the norm; ask about typical wait times and application windows early.

Getting a Mortgage on a Restricted Home

Financing is possible but narrower than for a conventional home. Both Fannie Mae and Freddie Mac buy loans on deed-restricted properties, with conditions.

Fannie Mae requires a fixed-rate mortgage or an adjustable-rate loan with at least a five-year initial fixed period. Only one- and two-unit properties are eligible, including condos, planned unit developments, and co-ops. Manufactured homes generally don’t qualify.⁷

The appraisal depends on what the restriction does in foreclosure. If it terminates automatically on foreclosure, the appraiser values the property at full market value as if unrestricted. If it survives foreclosure, the appraisal has to reflect the restriction’s effect on value using comparable sales of similarly restricted homes, which can be hard to find.⁷ For community land trust properties, Fannie Mae specifically supports loans where the borrower owns the home and leases the land.² Not every lender is set up to originate these loans, so you may need one experienced with affordable housing programs.

Living With the Restrictions

Buying is the first step. Your obligations continue for as long as you own the property.

The primary residence requirement catches people off guard most often. If your job moves you or you decide to live with a partner, you can’t simply rent the place out while you figure things out. The deed requires you to live there, and the enforcing entity checks. Many programs run annual compliance verification, which can include confirming occupancy and sometimes re-verifying income.⁸

Selling is also a structured process. You typically notify the program administrator first. The administrator calculates the maximum sale price using the deed’s resale formula and screens prospective buyers for income eligibility. Some programs hold a right of first refusal and can purchase the home themselves before you offer it to anyone else. Expect the sale to take longer than a conventional listing.

Because the restrictions are recorded on the deed, they’re enforceable in court. Depending on the program, penalties for violation can include repayment of the subsidy, fines, or in extreme cases a forced sale to bring the property back into compliance.

The Equity Trade-Off

A deed-restricted home opens a path to ownership at a price you couldn’t otherwise reach. In return, the resale cap that made the home affordable for you also limits how much wealth you build in it.

In an unrestricted home, if the market rises 50% over a decade, you keep the full appreciation. In a deed-restricted home, your gain is bounded by the resale formula, whether that’s a modest annual increase or a share of appraised appreciation. Under the HOME program, for example, the resale approach must give you a “fair return on investment” that accounts for your down payment and improvements, but that return is still limited by the requirement that the home remain affordable to the next buyer.⁴

Other financial edges are subtler. Refinancing and home equity borrowing limits mean you can’t tap your equity as freely as an unrestricted owner. Major renovations may need approval from the program administrator, because improvements affect the resale calculation. And if a recapture provision applies and you leave before the affordability period ends, part of your sale proceeds may go back to the subsidizing government.⁴

For many buyers, a capped mortgage and modest equity growth still beats rising rent and no equity. The point is going in with a clear read on what the restriction allows and what it doesn’t.

What Happens When the Restriction Ends

If a deed restriction has a fixed term, the property reverts to market-rate housing when that term ends. The owner can then sell at any price, to any buyer, with no income requirements. A 30-year restriction placed in 1995 expires in 2025, and whatever public investment created that affordable unit disappears with it.

Some jurisdictions build in safeguards. A right of first refusal can let the government or a nonprofit buy the home at market price when the restriction expires, re-restrict it, and sell it to another income-qualified buyer. Others require the seller to share a portion of the profit above the restricted price with the jurisdiction when a post-expiration sale happens. These mechanisms aren’t universal, and many older programs don’t include them.

1
Legal Information Institute. Covenant That Runs With the Land
2
Fannie Mae. Shared Equity Overview
3
Freddie Mac. Mortgages Secured by Income-Based Resale Restricted Properties
4
eCFR. 24 CFR 92.254 – Qualification as Affordable Housing: Homeownership
5
HUD USER. Income Limits
6
HUD Exchange. HOME Income Limits
7
Fannie Mae. Loans With Resale Restrictions: Eligibility, Collateral and Delivery Requirements
8
U.S. Department of Housing and Urban Development. Policy Guidance 2024-07 – Income Verification