Rent to Own

Consumers who are renting their homes may now enlist in rent-to-own programs that will assist them in finally becoming homeowners. According to Joy C. Shaw's article in the Wall Street Journal, Equity Residential Properties is a major proponent of the program. It began offering its "Rent with Equity" program in 1998 to residents of its 228,000 apartments. Tenants can apply 15 percent to 25 percent of their monthly rent to earn "equity credits" that can be applied to the purchase of new homes from affiliated builders. Even if they move out of their apartment, they can obtain a coupon for the credits that they can then apply to the purchase of a home from the affiliated builders. Credits are limited to 3 percent of the purchase price of their new home. The arrangements have grown to about 300 in 2001 from about 90 in 1999. An interesting side note: tenants who buy their homes under the program tend to rent their homes six or eight months longer than those who have not signed up for the program.

Freddie Mac began testing a similar program—Lease Purchase Program—in 1998. It is targeted at "low-to-medium income and/or credit-impaired households." Freddie Mac expects that about 400 units will be sold this year under the program. Under the program, consumers must pay one percent of the selling price of the home immediately and will assume the mortgage after leasing their houses for 39 months.