Rent-to-Own

RTO (Rent-to-Own) is designed to help moderate income families with credit scores too low to qualify for bank fina ncing.  If you are in this situation we can help.  With RTO you demonstrate your commitment to manage your budget and you improve your credit score with the help of a professionals at the Hagerstown Home Store and a homeownership coach at the Washington County Community Action Agency. 

Homes: HAWC is purchasing new or existing single family homes or town homes, usually 3-4 bedrooms, located in Washington County, outside the City of Hagerstown in the $120,000 to $150,000 price range. Potential home buyers will be able to select from these houses; or, if they find a home that fits their family needs in the right price range, HAWC will purchase the home.

This article covers the following topics:

• How we set rents
• Pet ownership
• Maintenance
• Savings incentives
• Sales price
• Down payments
• Housing counseling
• Selling the RTO home at a later date
• Homeownership for working families with lower incomes

Lease-purchase vs. RTO Lease-purchase means the tenant is contracted to buy a specific house at a later date and a defined portion of the monthly payment is going toward the purchase. The RTO option means that the tenant would have the option to buy at a later date, is committed to taking steps needed to become bank-qualified for homeownership with the opportunity but no commitment at the time of rental to purchase the specific home.

Rents are based on HAWC’s costs for management such as repair, mortgage, homeowner association fees (if any), taxes and insurance. The financing HAWC was able to arrange with the help of the Washington County Board of Commissioners allows the rents during the lease period to be lower than rents for comparable homes in the Washington County market.  In choosing a house the RTO applicant creates their own personalized homeownership plan: More amenities (costlier purchase price) creating a higher rent, versus choosing home-modesty and putting the rent dollars saved immediately into credit repair and savings.

Pets are allowed in the RTO program if the family enters into a pet addendum and provides the related pet deposit of $100 per pet per bedroom.   (Two dogs in a 3-bedroom home, for example, would require a pet deposit of $600.  Pet  deposits accrue interest just like the security deposit, and are fully refundable at time of sale.)

Paying rent on time is the first step to good housing credit. Late payments that result from mismanagement of the family budget will result in termination of the lease.

Maintenance: While you occupy the house as a renter, HAWC will be responsible for repairs and replacements. (A RTO Handbook, which each resident will receive, explains this in more detail.) Additionally, as repairs are made, the resident will be given the opportunity to see how the repair is made.  Home repair training is another way HAWC will help you prepare for home ownership.

Savings: During the rental period, HAWC wants to encourage families to become good at saving money.  Accordingly, we will create a savings account in your name and match your deposits up to $100 per month on a dollar-for-dollar basis. This means the more you deposit with us while your are a renter, the more you will have to put down at closing time.  There is no minimum amount required.

If you leave the RTO program you will get back any money you put into the escrow account with accumulated interest. If you leave the program because you purchase a home other than the one you rented from HAWC, we will contribute up to 50% of our match, with interest, to your closing costs. However, if we ask you to leave the program for cause (e.g. non-payment of rent or other breach of the terms of the lease), all of our matching funds will be forfeited.  (Return to top)

Sales Price: When you are ready to purchase an RTO home, the sale price will be HAWC’s investment plus one-half of any appreciation (not to exceed an increase of more than 1% per year). Our investment is what we paid for the house, including major improvements we added. We will use your lender’s appraisal to determine the current market value. For example, if we purchase a home for $145,000 with $5,000 in closing costs and we do $20,000 in repairs, our investment if $170,000. If the home appraises for $180,000 in 3 years, we will sell it for $175,151 as shown in the following chart:

In this example, you get $4,849 of instant equity which will help you qualify for mortgage financing. We will not sell a home for less than our initial investment.   (Return to top)

Down payment: The down payment amount when you purchase an RTO home will be whatever is negotiated between the buyer (you) and the lender. If you plan to save 20% of the total sales price over 4-5 years (including the escrow account with HAWC), you’d be on the right track given today’s mortgage environment. Families able to hit the $100/month saving goal right from the beginning, may building savings of over $18,000 in a five-year rental period.

According to state and federal regulations, the homebuyer selects the mortgage company to work with. How the loan is written, and what the interest rate will be, depends on the mortgage company and rates available at the time of purchase. However, HAWC will not sell an RTO house to you unless you have secured fixed-rate financing.

If all goes as planned, HAWC hopes to offer the RTO program for as long as it is needed.

Housing Counseling: One of the requirements of Rent-to-Own is participation in the housing counseling program offered by the Hagerstown Home Store. Through this program, you will have the opportunity to work on barriers that are currently keeping you from obtaining a loan such as credit score, saving the down payment, lowering your debts and other budget management issues. If you are diligently working with the Home Store and are not in a position to purchase in 5 years, we can negotiate an extension of time for you.

We will not sell the RTO house out from under you!  We will continue to lease the house to you as long as you are in the program and meeting the goals you set with the Home Store.

Selling an RTO home:  There will not be any restrictions limiting your ability to sell the RTO home.  However, we would hope that when it does comes time to sell, you would think about contacting HAWC. If you home’s selling price is still within our price range, we would love the opportunity help another moderate income family.

The RTO program was built on the homeownership model HAWC developed in the early 1990s with residents of our scattered site family housing units.  That program and a 2010 variation are both limited to families earning less than 50% of the area median income.  While working families of more limited means will need longer time frames to work on job skills and credit issues, stable housing enables families to focus on both short and longer term goals successfully.  The Homeownership Plan and instructions for scattered site families to begin the purchase process show our reliance on the Family Self-Sufficiency program to provide the right mixture of training and guidance to our residents.

The RTO program for moderate income families, accepts households earning between 80 and 120% of the local area median income as shown in the table to the right ...

(Return to top)