New Loan Helps Reduce Down Payments

Photo by: Dale H. Martin

Many renters say saving for the down payment is a major obstacle that is preventing them from purchasing a home. A new mortgage offering says it wants to help remove some of that burden for renters.

Home Partners of America, a rent-to-own firm, is touting its new mortgage product that allows tenants to apply some of the appreciation in their home’s value during the time they live there to reducing the down payment. In some cases, it could reduce the down payment requirement to nearly zero, The Wall Street Journal reports.

Some critics are concerned that it will help usher in a new crop of owners who receive mortgages they can’t afford with little or no down payment—a flashback to the housing bubble days.

Home Partners officials say their loan offering is different than those from the housing bubble, however. Bill Young, the company’s co-founder and chief executive, told The Wall Street Journalthat its loan program is reserved for prospective buyers who have already been paying their monthly rent on the same home for a certain period and who have demonstrated they can afford the home and are committed to staying in the home.

“Their skin in the game is they’ve proven they can pay their rent on time for 24 months,” Young says.

Home Partners launched about five years ago and has purchased nearly 8,000 homes in more than 50 metro areas. It plans to offer its piloted home loan program to current tenants and to those who sign a lease with them over the next two years. Home Partners will not issue any loans directly, but a lender, New Penn Financial, will make the actual loans, which will be backed by Fannie Mae.

Other entities recently have been exploring similar pilot programs to help renters become home owners. For example, homebuilder Lennar Corp. has offered to pay a portion of the student loan of borrowers who purchase a home from them. The company Loftium is wiling to provide prospective home buyers with up to $50,000 for a down payment if they agree to rent a room in their home on Airbnb for one to three years.

Source: “New Mortgages Allow Renters to Buy With Tiny Down Payments,” The Wall Street Journal (Nov. 28, 2017) [Log-in required.]

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