Rent-to-own programs are resurging

Rent-to-own programs, popular in the 1990s, are making a comeback, with several newly-established firms giving potential buyers with damaged credit an opportunity to become homeowners.

The new programs allow customers to secure a home before they have enough money for a down payment — though they may pay a higher rent than market-rate in the meantime, and end up paying an overall higher price for the home the longer that they rent, according to the Wall Street Journal.

One of the fastest growing firms is Home Partners of America, co-founded three years ago by ex-Goldman Sachs executive William Young. The company received a $500 million equity investment last year from BlackRock’s alternative investments arm.

“What really frustrates me personally is that a lot of people I grew up with, extended family members, would have trouble getting access to mortgage credit today,” Young said.

Home Partners customers can select from homes between about $100,000 and $725,000 in pre-approved communities, which are usually suburban areas with good school systems. Home Partners will then purchase the home and rent it to the customer.

The renter benefits by getting access to a community that wouldn’t usually have many single-family rental options, with the door always open for them to walk away and decide not to purchase the home. Home Partners of America expects about half of the renters to eventually purchase a home. [WSJ] — Tess Hofmann