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A LEASE-PURCHASE PROGRAM DESIGN

A LEASE-PURCHASE PROGRAM DESIGN. Presented By: Kevin Smith, President & CEO Community Ventures Corporation Lexington, KY. Program Intentions . To Expand Homeownership Opportunities To Low-to-Moderate Income Households Who Are Not Able To Secure A Traditional First Mortgage

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A LEASE-PURCHASE PROGRAM DESIGN

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  1. A LEASE-PURCHASE PROGRAM DESIGN Presented By: Kevin Smith, President & CEO Community Ventures Corporation Lexington, KY

  2. Program Intentions • To Expand Homeownership Opportunities To Low-to-Moderate Income Households Who Are Not Able To Secure A Traditional First Mortgage • To Revitalize Neighborhoods Through The Acquiring And The Rehabilitating Of Vacant Properties That Will Be Leased With Intent To Own.

  3. Key Agency Personnel • Counselor • Assesses Potential Lease Purchase Clients • Creates Home Buyer Plan With Clients • Monitors Home Buyer Plan with Clients - Monthly or Quarterly

  4. Key Agency Personnel • Property Manager • Does Pre-Purchase Home Review • Approves Purchase of Unit • Enters into Purchase Agreement and Lease with Client • Hires Sub-Contractors To Perform Any Needed Repairs or Improvements To Property during Initial Purchase • Ensures Property is Maintained During Lease Period

  5. Key Agency Personnel • Housing Finance Manager • Performs Final Mortgage Ready Assessment • Identifies Financing Plan Best Suited For Client • Obtains Loan Approval And Funds Loan • Loan Servicing Clerk • Services All Payments • Monitors Clients Payment Patterns • Informs Counseling Department If Post-Purchase Counseling Is Necessary

  6. Property Characteristics • Age Of Property • Built After 1978 (Lead-Based Paint Avoided) • Plumbing • Avoid Galvanized Pipe (Rots From Inside, Reduces Water Pressure) • Windows • Avoid Steel and/or Single Pane Windows For Better Energy Efficiency And Warmth To Occupants • Structure • Avoid Structural Defects (Foundation Cracks) • Floors Need To Be Level (No Bowing)

  7. Property Eligibility & Inspections • Purchase Price Limit (ie. $150,000) • Home Must Meet HUD Standards • Housing Quality Standards (HQS) Inspection Required When HOME Funds Involved • Independent Home Inspection Required • Must Pass Local Code Inspection • Property Not Located In Flood Hazard Area • Single-Family Units Only

  8. Participant Eligibility • Household Income Limitation • Not To Exceed 80% Area Medium Income (120% under NSP) • HUD HOME Fund Limits Apply • Client Qualified at Beginning Of Lease Period • First-Time Homebuyer (Has Not Owned In Last 3 Years) • Property Must Become Primary Residence • To Be Mortgage Ready Within 24 Months • Must Obtain Pre-Purchase Homebuyer Education

  9. Participant Affordability Criteria • Typical Housing Payment Ratio 25% • Typical Total Debt Ratio 41% (Maximum)

  10. Lease Period/Graduation • Lease Period • Not Less Than 6 Months • Not More Than 24 Months • Participant Pays Rent • Rent Amount Includes: • All Outstanding Loan Payments • Maintenance Reserve • Homeowner’s Insurance Premium • Vacancy Reserve • Management Fee • No Need For Set Aside Of Rent For Down Payment If Funding Sources Available (ie. HUD HOME Funds)

  11. Lease Period/Graduation • Participant Graduation Within 24 Months From Acquisition Preferred • Equity Gained Is Hedge Against Risk • Sale Of Property MUST Occur Within 42 Months From Acquisition To Avoid Property Converting To “Permanent Rental” (IF HUD HOME Funds Used To Acquire Property)

  12. Determining Sales Price • Property Sold To Participant At Original Sales Price Plus Major Repairs

  13. Financing (Funding Sources) • Property Acquisition Funding • Bank Partnership Fund Sources Utilized • Only Short-Term Financing Needed • During Lease Period Only (Up To 24 Months) • Funds Majority (80%) Of Purchase Dollars Needed • HUD HOME Funds Utilized • Used At Acquisition To Partially Fund (20%) Initial Purchase • Passes-through To Buyer At Final Sale • Can Be Used For Down Payment And Closing Costs

  14. Financing • Property Acquisition Funding (Continued) • Bank Enterprise Awards (BEA’s) • Flexible Sources Of Funds • Can Be Used In Conjunction With Other Sources • Provides Reserve to Lower Risk • Equal to 6% of Loan Amount • Client funds $500 (non-refundable)

  15. Permanent Financing • Traditional First • HUD HOME Funds • Buyer’s Initial $500

  16. Financing Example (At Acquisition) Acquisition Purchase Price (Below Market Value)$78,000 Closing Costs +$ 2000 Rehabilitation Costs +$ 3000 Total Acquisition $83,000 Funding Used By Agency To Purchase: Partner Bank Line Of Credit $66,400 HUD HOME Funds $16,100 Lease-Purchase Client Deposit $ 500 Total Funding Allocated $83,000 BEA Funds $ 3,984

  17. Financing Example (At Sale) Sales Price$85,000 Payoff Of 1st Mortgage Funds -$66,400 HUD HOME Funds Passed On To Buyer -$16,100 Lease Purchase Client Deposit Returned -$ 500 Closing Costs -$ 2,000 Gain On Sale Of Home $ 0

  18. A LEASE-PURCHASE PROGRAM DESIGN This Concludes The Presentation!

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