Home Partners of America puts renters in buying seat

Takeaways:

Home Partners of America purchases homes in 30 markets across the country, then leases the homes to tenants for an agreed-upon time frame, after which the residents may opt to purchase the home.
The resident’s only financial commitment is to lease the house for one year.
From an agent’s perspective, the program offers access to a larger pool of prospective clients.

Home Partners of America has unveiled a “lease with a right to purchase” program aimed at giving thousands of renters a path to homeownership — and real estate agents a potential new commission stream.

How Home Partners of America works

Launched in mid-2012 as a new solution to the tight mortgage market, Home Partners of America purchases homes in 30 markets across the country, then leases the homes to tenants for an agreed-upon time frame, after which the residents may opt to purchase the home.

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“The program is for people who want the benefit of living in a single-family home, but for whatever reason are nervous about buying a home, or are unable to purchase one because of the situation in the mortgage market today,” said Sharon Park, the company’s chief administrative officer.

A screenshot from Home Partners of America’s website.

“We really wanted to figure out a way to help consumers solve some problems we saw developing in the market, problems we felt would be fairly prolonged.”

Where it started and how it grew

Founded in a grass-roots manner, Home Partners of America first began working with real estate brokers and agents in the Chicago area to establish a program to facilitate qualified resident access to home financing. Capital for the startup was provided by BlackRock Inc., KKR and other institutional investors.

Counting among its many partners brands like Century 21, Coldwell Banker, ERA, Better Homes and Gardens Real Estate, and NRT LLC, plus lenders like PHH Home Loans, the company then branched out to a few dozen strategic markets across the country, acquiring homes in communities where schools ranked in the top half of the market and where, historically, there are fewer homes available for rent but a significantly larger number of homes for sale.

Ayoub Rabah

What are the benefits?

This strategy, according to Ayoub Rabah, head of marketing, maximizes the likelihood of long-term home appreciation, fueling the Home Partners of America business model and building a foundation for its customers’ long-term financial success.

“We want to achieve a win-win-win situation for all parties involved,” Rabah, who worked as a top-producing real estate firm owner for many years, said. “For us, for real estate agents and for the homebuyers.”

What homebuyers can expect from the program

For homebuyers, here’s how it works:

Prospective residents start the process by filling out a prequalification application, paying a one-time, nonrefundable fee of $75.
Qualified applicants must have an annual income of $50,000, stable employment, and no history of eviction, pending bankruptcy or criminal conviction.
Once the prequalification application is approved, the applicant submits a full application consenting to a full credit and background check.
From there, Home Partners of America will outline the maximum monthly rent of the home for which the prospective resident qualifies.

Once approved, prospective residents work with a Realtor to find a home in an approved community. Home Partners of America will attempt to purchase the home, pending an agreed-upon purchase price with the seller, a satisfactory inspection, attorney review of the purchase contract and other closing conditions.

Financial commitments and conditions

Most homes — single-family homes or fee-simple townhomes only — are listed for between $100,000 and $500,000 in most states, are located on a lot of no more than 3 acres, have a minimum of two bedrooms and involve traditional sales. Short sales, auctions and REOs are not eligible for the program.

Once Home Partners of America completes the purchase, the company then provides a rent and purchase price agreement, and the resident puts down a refundable deposit of two months’ rent.

The resident’s only financial commitment is to lease the house for one year. Each year, a resident’s monthly rent increases by no more than 3.75 percent. The right-to-purchase price also increases by 3 to 5 percent each year. Tenants can choose to renew their lease or purchase a home at any point in time during their residency — or they can even walk away from the deal altogether.

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The residents’ rent payments do not count toward their eventual mortgage if they decide to purchase the home, and if they do elect to buy, they will incur traditional closing costs. It’s up to them to obtain a mortgage; Home Partners of America is not a lender.

“The program gives consumers a lot of flexibility and choices,” Park said. “Our program is designed to give them the ability to make a decision that best suits their needs. For some, it can be a way to get back into homeownership if they don’t have the credit to do that in the near term.

“Knowing what the rent increases are for each year helps a consumer plan from a budgeting perspective. But they aren’t obligated to buy the home. If they have a change in life circumstance, they can give us notice that they want a release.”

The benefit for agents

From an agent’s perspective, the program offers access to a larger pool of prospective clients, including renters whose situations may have led them to believe that they didn’t have a shot at qualifying for a mortgage, Rabah said.

“The beauty for the agent is now they are earning a sales commission versus a rental commission,” he said. “Rentals have been pushed to the side in the Realtor community simply because the revenue is not there. Realtors may earn a commission of $1,000 on a rental, but they may earn about $7,500 in commission if we purchase a home.”

Sellers also love the program, “because we are a cash buyer who puts in a fair offer that closes in 30 days or less,” Rabah added.

Email Amy Swinderman.