Kate and Richard Kennedy are homeowners at last.

Last winter, the Kennedys and their two children moved from a two-bedroom apartment in Falls Church to a modern, two-bedroom cooperative in Reston.

And, for the first time since Kate Kennedy had her oldest child eight years ago, she is able to stay at home with her children.

In this era of spiraling inflation and housing prices, how did the Kennedys do it?

By moving into federally subsidized housing.

Reston is biled as "Northern Virginia's Planned Community." With the official opening of the Island Walk Cooperative last week, the community now has nearly everything in the way of housing -- townhouses, single-family homes and federally subsidized housing for low- and moderate-income families.

The 102-unit Island Walk Cooperative was built by the Fairfax County Housing Authority and financed by the sale of bonds and subsidized-housing funds from the U.S. Department of Housing and Urban Development (HUD).

Families like the Kennedys were able to purchase cooperatives if they earned less than $19,000 a year. (HUD recently increased the income limit to $21,000 for a family of four.)

When Kate Kennedy was working as a typesetter, the family's income was above the $19,000 limit. Because Kate quite her job, however, the Kennedys rely on Richard's salary as a truck driver and are within the income limit for the cooperative.

"People were always telling us to buy a house," Kate Kennedy recalled as she sat on a sofa in the tiny living room of her new home. "But who wants to sign one-half of their income away to a house?

"Besides, with my husband on the road a lot, I need to be home with my children. I love it here."

Like other cooperative residents, families in Island Walk own a "share" in the co-op rather than a specific unit. Residents were required to make a small down payment -- about $700.

To determine each resident's monthly housing payment, HUD set a "fair monthly rental" price on each unit. Residents pay no more than one-quarter of their monthly income for housing, with subsidized-housing funds making up the difference.

For instance, the fair-market rental on a two-bedroom unit ranges from $404 to $457 a month, depending of size. If an occupant earns $800 a month, the monthly payment would be $200. Subsidized-housing funds would make up the $204 to $257 difference.

Since the residents are owners of the cooperative, they cannot be forced out if their incomes exceed the government-imposed limit, and they continue to pay no more than one-quarter of their monthly wages regardless of how high their incomes climb.

Dierdre Coyne, of the Fairfax County Housing Authority, says the fair-market figures tend to shock some people, but cautions that the numbers should be viewed in light of the new rental-housing market.

"There is no new rental housing being built in Fairfax County right now," Coyne says. "Those fairmarket rental figures reflect the true cost of materials and labor.

"The conventional market just isn't building a housing without some kind of subsidy."

Residents' incomes now range from $2,362 a year for a Social Security recipient to $18,491 for a family of four, according to Housing Authority officials, with most residents' incomes near the upper limit.

The Housing Authority says it has established a 30-70 mix of low- and moderate-income families. Thirty percent of the residents qualify as poor -- they earn less than $12,000 annually for a family of four. The other 70 percent fall in the moderate classification.

In addition, 25 percent of the occupants are minorities -- mostly blacks, but there are several Vietnamese and Middle Eastern families as well.

Luong Banh, who fled Vietnam a year ago with his wife and five children and now lives at Island Walk, says he likes the concept of a cooperative. In fact, Banh works for the Cooperative League of America in Washington, which helps set up cooperatives around the country.

"It's wonderful," says Bahn, whose family lives in a four-bedroom co-op at Island Walk. "It's people working together to help each other. You can solve problems when you work together."

Only two of the units remain vacant. Of the 100 families now in the cooperative, 35 include married couples. The others are headed by single parents, mostly women.

All the residents are employed and the occupations vary greatly. There are numerous secretaries, a Montgomery County teacher, an electrical engineer, computer operators and several employes of the U.S. Geological Survey, which is in Reston.

"We're just normal people trying to survive," says Ruby Seering, one of the first occupants of the cooperative. Seering said she and her daughter were living in a mobile home "full of ants" before they came to Island Walk.

"It gives single women our first chance to do something on our own," Seering says.

But Island Walk Cooperative did not come to Reston easily. Many nearby residents bitterly opposed subsidized housing in their neighborhood.

After many months of negotiations, the Board of Supervisors approved the project and construction went ahead as planned.

The cooperative buildings are plain and box-like, with the units close together. The buildings were painted battleship gray until complaints from residents convinced the Reston Architectural Review Board -- which grants or denies permission for all exterior building changes -- to allow the units to be painted tan.

While most residents agree that Island Walk is preferable to the places they lived before, some are not totally satisfied with the facilities. They complain about the same things that irritate other new homeowners.

"I hate to say it, but it's like a lot of government contracts -- very cheap construction," says Kate Kennedy.

Ruby Seering agrees.

"The walls are very thin," she says. "If you're sitting on your sofa and the people next door are having an argument, you sure can hear a lot."