13
EZTHE WASHINGTON POST.
SATURDAy, MARCH 14, 2020in eight markets nationwide, is among a cadre
of relatively young companies and start-ups
reimagining contracts for deed by offering
aspiring homeowners more say and more
financial leverage.
The start-ups cater to a wide variety of
customers, from young professionals who of-
ten relocate for work to families who struggle
to amass enough for a down payment to those
who need to improve their credit scores.
Although statistics quantifying the level of
activity in the movement are hard to come by,
the Te rner Center for Housing Innovation at
the University of California at Berkeley in a
2017 report said: “Particularly in the wake of
the financial crisis, the benefits of this type of
alternative model have led to a resurgence of
interest in lease-purchase, and both public and
private-sector actors have been exploring the
viability of lease-purchase products to respon-
sibly and sustainably help families enter home-
ownership.”
The rent-to-own companies usually pur-
chase the single-family houses their customers
want but cannot or will not buy outright for a
variety of reasons. The clients become renters
(and sometimes partial owners) who, under
predefined terms, have the choice to buy the
property during the option period.
Given the history of lease options, and the
complexity, it’s important to do your home-
work.
Here’s what you need to consider if you’re
exploring a lease option as a path toward
homeownership:
Work with an agent
Finding a reputable real estate agent should
be the first step in finding a legitimate rent-to-
own company.
While they may operate within the same
realm, rent-to-own companies and investors
differ in how they prequalify customers, struc-
ture payments and negotiate purchases. An
agent can help walk you through the process.
Most of those ventures team up with broker-
ages to educate agents on their modus operan-
di. For instance, Home Partners of America
(HPA), whose lease-option program is available
in 41 markets, has a partnership with Century
21.
That is how Beverly Drewery, an agent with
Century 21 New Millennium in Maryland, first
heard of HPA. In 2015, after taking self-guided
courses on the specifics of HPA’s rent-to-own
package, she become an HPA certified agent.
In the four years since, Drewery said she has
witnessed a steady rise in clients who seek HPA
as a means toward buying a home.
“We’ve seen people who just don’t have the
resources for the down payment, so we are
seeing an increase in the number of [people
interested] in [HPA’s] program,” said Drewery,
adding that in the past year she has helped a
dozen clients purchase a home with HPA.
It is also beneficial to meet with a couple of
lenders to gauge buying power and outline any
steps needed to repair credit scores and boost
budgets while a lease-option lasts.
“I think people should talk with a mortgage
broker so they know what they need to work on
if mortgage readiness is part of their challenge,”
said Marjorie Scholtz, founder and chief execu-
tive of San Francisco-based Verbhouse.
Harmon’s real estate agent introduced him
to the program.
In early 2019, Divvy purchased a three-bed-
room, two-bathroom ranch house for $127,900
for Harmon. He spent the next three months
working with a credit repair specialist and
paying out of pocket for fixes to the garage in
order to qualify for a home loan from the
Federal Housing Administration.
“Divvy allowed me to get the exact home I
wanted at the correct time,” he said via email.
Otherwise, Harmon said he would have had
to shell out more than $1,000 a month in rent
for a smaller house and as much for storage. By
leasing from Divvy (with monthly payments
going toward both rent and equity in the
home), he was able to cut his housing expenses
in half, he said.
Three months after entering the rent-to-own
agreement, Harmon said he bought the house
outright for $134,000.Structure of the programs
The monetary mechanics of the lease-option
companies vary. Divvy, for instance, requires
that clients contribute some 2 percent of thehome’s value when the company buys it for
them.
“That’s what we call their initial savings,”
Hefets said.
With Divvy, each monthly payment resem-
bles a mortgage outlay in that a portion of the
amount goes toward raising equity for resi-
dents and the rest covers the interest or rent
profit for Divvy.
“[Customers] build up their ownership so
that 2 percent goes up to 2.2 percent the first
month, to 2.4 percent the next month,” said
Hefets. “We build them up to total of 10 percent
over the course of three years.”
Verbhouse, which is rolling out a pilot
program for educators, has a similar structure.
A tenant buyer initially pays 5 percent of the
home’s value, while each monthly installment
splits toward both rent and equity.
“If the down payment is a challenge for
[clients] and they haven’t built equity, then
they’re going to have the same challenge at the
end of the [lease] term as they did in the
beginning,” said Scholtz.
While Verbhouse’s 5 percent upfront re-
quirement may suffice for a mortgage down
payment, it pivots to customers whose finan-
cial history might preclude them from securing
a home loan or borrowing a large enough sum.
It could also appeal to those who, before
buying, prefer to assay living in a neighbor-
hood, which offers few other rental possibili-
ties.
Where rent-to-own companies seem to con-
verge is the overall process of executing an
agreement.
They buy houses that are listed for sale, notPHOTOS BY ELIJAH NOUVELAGE FOR THE WASHINGTON POSTLEFT: J B Harmon outside his home in
suburban Atlanta.
A BOVE: Harmon worked with a credit
specialist and b ought the ranch-style home
using Divvy, a new rent-to-own company.