Strapped for cash and desperate to buy a home? We hear ya. While today's homeownership rate is trending back up after reaching its lowest level since 1965 last year, there are still thousands upon thousands of people who would love to become homeowners but who are stymied by the lack of a down payment.
Yes, loans you can get through the Federal Housing Administration (FHA) require as little as 3.5% down, and some other loans out there drop that minimum down payment even lower. But rents that just continue to rise across the country can keep cash-strapped folks from being able to get together the savings required to get in the door - literally.
Rent-to-own company Home Partners of America may have an answer. Yes, rent-to-own.
Before you scrunch up your face at the idea of something that sounds too good to be true or something that brings back memories of "old school" arrangements that could prove costly for potential buyers in more ways than one, it's important to know that there are some key differences here. What Home Partners is offering is unique, with features that benefit the renter/buyer. That's not necessarily so with some other rent-to-own options like owner-occupied homes and companies who buy distressed homes through bulk foreclosures with the intent to rent them out and potentially sell them to tenants. Some of these other options have resulted in tenants who are locked into contracts that require them to pay hefty upfront deposits - deposits that could sometimes approach what they would need for a down payment in some areas!
"Rent-to-own companies have a poor reputation in the housing industry for taking nonrefundable deposits from tenants who clearly won't ever be able to qualify for a mortgage or afford a home," said Realtor.com. "Home Partners doesn't take a nonrefundable deposit, so if the home's value declines or they decide not to buy for any other reason renters can simply walk away."
The rent-to-own program through Home Partners keys in on desirable locations, making the idea more viable from both a financial and desirability standpoint. Instead of searching for a needle-in-a-haystack home for rent with the option to buy, "Home Partners of America works with prospective homebuyers... to identify and purchase properties that the consumers select, but can't buy themselves," according to Moody's, said HousingWire.
"The prospective homeowner chooses a property that he would like to eventually buy, and if the property fits HPA's criteria and the tenant qualifies, HPA buys the property and the tenant enters into a lease and Right to Purchase Agreement that allows the tenant to buy the property at a pre-determined price during the term of the lease, which is typically between three to five years. The purchase price typically increases by 3.5-5% per year throughout the term of the lease."
Additionally, this mortgage product "applies some of the appreciation in their home's value during the time they have lived there toward reducing the down payment," said Realtor.com. "In areas with even modest home-price appreciation, that could reduce the down payment requirement to almost nothing. If the home fails to appreciate or if the tenant opts not to purchase, they can simply walk away."
The program has been around for five years, and Home Partners has purchased about 8,000 homes in more than 50 cities so far. As rents continue upward, growing the affordability gap for many homebuyers, it's not surprising to see this program's popularity growing in lockstep. Loans for the program go through Pennsylvania-based lender New Penn Financial and are backed by mortgage company Fannie Mae.
"Not unlike a traditional house hunting process, you'll be working alongside a real estate agent to view listings that fit your budget, lifestyle and daily commute," said Metro Brokers. "The only difference: you'll be viewing listings in Home Partners' approved communities. What does that mean? For a community to be approved by Home Partners, it must meet safe housing criteria, have access to A-rated school systems with listings typically priced between $100,000 and $550,000."