Urban Turf | Washington, DC | November 4th, 2022
Last week, UrbanTurf looked at how rent-to-buy scenarios are making a return to the housing market in the current high interest rate environment. Today, we take a look at how a new condo development in DC is utilizing this strategy.
The Stella, an 18-unit condo project in Petworth, is offering a lease-to-own program called “Pathway to Homeownership” on its remaining homes. Here is how it works for a two-bedroom unit: The purchaser and seller come to terms on a sales price of $480,000 for the condo. They agree on a rent amount of $3,400 per month with a lease duration of 12 months. Rent payments are made directly to the title company, and 70% of the monthly rent ($2,380) is held in escrow for the duration of the lease. The remaining 30% ($1,020) is used to cover operational expenses such as condo fees, property taxes, utilities, etc.
At the end of the 12-month lease, the purchaser/renter can elect to move forward to settlement and complete the purchase using the balance of funds held in the escrow account ($28,560) towards their down payment, closing costs, or other settlement costs. Otherwise, the purchaser/renter releases the amount held in escrow as a final rent payment and move-out as they would in a traditional lease.
“Theoretically a person could sign up with this program and end up with 6% of a down payment, just by paying rent for a year,” Robbie Cook of McWilliams|Ballard said. “Since many loan options only require 3% or 5% down, this is more than enough to get someone into a home they then own.”