I've seen a lot of "unique" financing programs come across my desk and most of them were simply warmed over and repackaged programs that have been on the market for quite a while. But not since the introduction of 100 percent financing have I gotten as excited about a mortgage product than one I saw this week from Freddie Mac.

Home Sweet Home Virginia is a new type of program that promises to become a nationwide product for Freddie Mac as partners line up with the proper support and funding. Basically, it's a lease-to-purchase program that helps low- to moderate-income buyers or purchasers with credit problems get into a house by first renting it and then converting the lease into a purchase.

Now, this isn't a new way of financing a house -- owners have been offering lease-to-purchase offerings for years. However, this is the first time a national money source -- Freddie Mac -- has lined up with other national partners to create such a program buyers can use for either a new home or existing house purchase.

Freddie Mac launched a similar $90 million program in California in September, 2001. Freddie Mac spokesperson Brad German says the program works well with housing agencies that have bond-issuing authority.

The original funds for these programs come from the issuance of bonds. The housing agency then works with the at-risk homebuyer to get him or her into the target property. Once they fulfill the 39-month lease, the deed and mortgage is then transferred over to the purchaser and Freddie Mac buys the loan on the secondary market, thus replenishing the funds for future purchasers.

The new program is "designed to help families with blemished credit, a lack of traditional credit, or a lack of funds for a downpayment to move into a new or existing home," according to Freddie Mac. All potential borrowers must participate in a borrower-counseling program provided by HOPE International, Inc.

The program is available from local housing agencies who can issue bonds to raise the initial funds. The Home Sweet Home, Virginia initiative is available to households who earn up to 140 percent of the area median income ($119,400 for a family of four) and meet the initiative's minimum underwriting requirements. To qualify, Lease-Purchasers must agree to complete the borrower pre- and post-purchase counseling program offered through H.O.P.E International.

The Virginia program will start in high-priced Fairfax County where new single family houses sell for more than $525,000 and new townhouses tip the pricing chart at $300,000-plus. This is to target homebuyers who are caught in escalating priced areas where generally only higher income purchasers can afford to buy in the area.

Interestingly, the initiative is coming from all over the state, but targeted at a few jurisdictions. The Harrisonburg Redevelopment and Housing Authority, based in the western part of Virginia, is issuing the bonds, but it's helping buyers across the Old Dominion. HOPE International, a nonprofit housing agency located in the Washington, D.C. suburbs, handles the mortgage applications while First Financial Equity and other lenders will provide the mortgages.

Neither the California nor Virginia program requires a downpayment, however, the purchaser must pay a commitment fee equal to 1 percent of the home's purchase price. Once the purchaser assumes the mortgage other costs associated with the purchase and loan assumption must also come from the buyer.

Freddie Mac has a good program here and hopefully housing agencies across the country will get on board. Housing agencies interested in forming a lease-purchase program should contact Freddie Mac at 703/903-2437 for details.

(Virginia buyers can call 703/267-5673 for application information. California residents can get more information on the East Bay-Delta Lease-Purchase Program web site or by calling 510/796-9257.)

For more articles by M. Anthony Carr, please press here.

Published: February 1, 2002

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Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple. Got a personal real estate issue? Post your questions and comments at Anthony’s blog: commonsenserealestate.blogspot.com.