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WASHINGTON--Jesse and Trendia Horton had seen the posters touting a new effort designed to put low-income renters in their North Little Rock, Ark., neighborhood into homes of their own.
They had seen and heard the television and radio spots, too. But they didn't think it was something they were ready for, at least not right now. "We didn't think we were old enough or had enough money to be homeowners," Jesse says.
But every month when the couple paid their rent to the Argenta Community Development Corp., a local nonprofit, they were told they were "perfect candidates" for the new $43 million Pulaski County Dream to Own Program. So they decided to pay the $25 application fee and let the chips fall where they may.
Now the Hortons and their two youngsters are in a three-bedroom, one-bath house with a fenced back yard in the Mid-City section of North Little Rock. They don't own it just yet. But if they keep their noses clean, they will own it in three years when they will assume the remaining 27 years of the mortgage from Argenta.
The Hortons are one of the first families to be qualified under an experimental lease-to-own program started last spring by Freddie Mac, a major supplier of mortgage funds. It is one of a spate of innovative new programs initiated to help renters become owners. Even big-time landlords are getting in on the act.
Equity Residential Properties, a Chicago-based real estate investment trust that owns 225,000 units in 1,100 apartment communities nationwide, enrolls every one of its tenants in its Rent With Equity program. And the Apartment Investment and Management Co., a Denver-based trust with 327,000 units in 1,800 properties in 47 states, just rolled out a similar program for qualified tenants.
The two programs and others like them are self-serving in that they are designed to attract residents and keep them longer. But that shouldn't deter tenants from taking advantage of them. As Equity Residential proclaims in one of its brochures, "Our loss is your gain."
Attracting and retaining occupants is a big problem in the apartment business, especially with mortgage rates so affordable right now. For example, nearly 70 percent of Equity Residential's 225,000 residents move out every year, 40 percent of them to buy a house. And that's not out of the ordinary, industry sources report.
So rather than deny the existence of home ownership or try to fight it, the big landlord decided instead to cash in on the craze with a frequent flier-like program that rewards loyalty.
"It used to be that everyone was trying to reach the buyer at the point of sale. Now we're trying to get to people at the pre-point of sale, when they're in the thinking phase, not the looking phase," says Thomas Meyer of the Homebuilders Financial Network, which operates a mortgage banking division Equity Residential has set up to try to capture a share of that business, too.
Here's how the company's Rent With Equity program works: Each month, every tenant earns credits that can be used to buy a house, either a new one from a participating builder or an existing house from an individual seller. The longer you rent, the more points you earn. And when you are ready to buy, you can use the credits to lower the cost of the house and the cost of the mortgage.
There are no forms to fill out or fees to be paid. No minimum residency is required, either. Even roommates can earn credits independently.
Of course, tenants are required to fulfill the terms of their leases. Also, the points must be used within 120 days after you move out. But the credits are transferable between any Equity Residential property.
Everyone is enrolled automatically in the program when they sign their leases, and points equal to 20 percent of the monthly rent are credited to their accounts every time the rent is paid in a timely manner.
When an Equity Residential tenant is ready to buy, they can redeem their points in several ways. If they are purchasing from a participating builder, they can use the points to obtain up to a 3 percent discount off the purchase price.
And if they use their landlord's in-house mortgage division to find financing, they can get an additional break equal to 25 percent of the builder credit (up to a maximum of $1,000) on their borrowing costs.
If you were paying a base rent of $800 a month, for example, you'd accrue Rent With Equity credits of $160 a month. And if you were a resident for 24 months, which is about how long it takes to earn the maximum credit, you'd have $3,840 in builder credits and $960 in mortgage credits.
The benefit isn't as great if the tenant buys an existing house. The company puts up only 25 percent of the cash it would pay for a new house. But you can still double-dip by using your mortgage company credits.
Equity Residential markets the program to residents and potential residents alike. And builders love it, because it gives them a direct pipeline to more than 63,000 possible customers a year. "Not just possible customers," says a company spokesman, "but possible customers with a vested monetary interest in purchasing from them."
AIMCO's HomePlanner program takes another approach. Partnering with American Home Mortgage Holdings, which owns the MortgageSelect.com, a leading Internet lender, the big landlord will reward faithful occupants with up to $1,500 in closing cost credits and other so-called "high demand" home buyer assistance services.
While renter assistance programs like Equity Residential and AIMCO's are aimed at market-rate tenants who don't really need a helping hand, Freddie Mac's initiative is targeted to low and moderate-income families in underserved communities who lack the money for a down payment or closing costs and have tarnished credit or no credit at all. People like the Hortons, working stiffs who have jobs, go to school at the local tech college, tend to their 2- and 5-year-old kids, but always paid for things in cash because they were deathly afraid of credit cards are ideal candidates.
They paid a $500 administrative fee to Argenta, the local nonprofit that actually purchased and rehabilitated the house where the Hortons now reside. But nothing more was required, not even a down payment.
Their rent is equal to the mortgage payment paid by their landlord.
And if they make their payments on time and otherwise demonstrate they're qualified to be owners, they'll assume the mortgage in 38 months and the place will be theirs.
"It's been a blessing all the way through," says Jesse, who was already enrolled in Argenta's financial fitness program and on a five-year savings plan to buy their first home when the Dream to Own program began last March.
The place is a former crack house where several children were badly burned in a fire. But that didn't matter to the Hortons. To them, it's just home, their home.
"When we saw it, we fell in love with it," says Jesse. "We didn't know its history. To us, it was just a beautiful old house."
--United Feature Syndicate