Many of our clients are trying to find a way to address B & C credit borrowers who cannot participate in their traditional single family programs. One way to address this problem is to create a program that counsels borrowers on how to improve their credit so that in the future they can qualify for traditional mortgages. If this credit counseling program can be accompanied by a financing mechanism that allows a potential purchaser to live in the home that he or she will ultimately own, the motivation to successfully complete the counseling program is significantly enhanced.

In a lease-to-own program, a nonprofit works with the potential homeowner to find a home that the participant wishes to ultimately purchase. The nonprofit then purchases the home and leases it to the participant. A traditional first mortgage is made in the name of the nonprofit. A second mortgage is also made to provide the required down payment assistance as well as to fund program reserves. The nonprofit acts as both property manager and credit counselor to work with the participant until the participant’s credit quality is sufficient to assume the first and second mortgages. Because the program is totally funded from taxable sources, a borrower is free to exercise their option to purchase anytime that they qualify to assume the first and second mortgages without any penalty. If the property has appreciated in value during the term of the lease, the homeowner can still purchase the property for the remaining balance of the first and second mortgages. If an issuer already has a taxable second mortgage program in place, there is no minimum size to the lease-to-own program.