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Lease/Option-to-Purchase Plan
Colorado Springs

Over the years, the Colorado Springs Housing Authority had used a variety of resources to provide homeownership opportunities and had cooperated with the city of Colorado Springs on many programs and efforts. However, the special homeownership needs of public housing residents had not been met.

A number of these residents had sufficient income to support a modest mortgage payment but insufficient cash for a down payment or closing costs; or else they had credit problems or an unstable employment history, which prevented them from obtaining conventional financing. When HOME funds first became available in 1993, the housing authority determined that a lease/option-to-purchase program could be designed for these people that would lower the overall cost of homeownership, relax credit requirements without jeopardizing the homeowner's ability to make payments, and provide nonfinancial support, such as homeownership and budget counseling. The city committed $267,000 in HOME funds to the program in its first year.

The program provides a two-year lease, during which participants can resolve lending deficiencies and simultaneously build a fund to cover down payment and closing costs. Potential participants are carefully screened by the housing authority and by the participating lender, Colorado Springs Savings and Loan. Applicants must be reasonably able to resolve credit problems or stabilize their employment situation within the two-year period. A plan is developed for each family to help attain that goal, and participants meet regularly with housing authority staff to discuss their progress. (The program does provide additional time for families who cannot meet the necessary requirements within two years.)

Approved participants must interview at least three realtors and attend a first-time home buyers course. Once the participant has found an appropriate unit to purchase, it is inspected by a firm under contract to the housing authority. If the unit is acceptable, it is purchased by the housing authority and leased to the participant.

HOME funds are used to provide a 50 percent down payment. Colorado Springs Savings and Loan provides mortgage financing to the housing authority at below-market rates to cover the rest of the purchase price. During the lease period, the participants make a monthly payment to the housing authority that includes the mortgage payment to the lender, a $115 maintenance and administration fee, and a contribution to an escrow account that will pay off the down payment and closing costs by the end of the lease period. The maintenance and administration fee covers the cost of loan fees, title commitment, home inspection, and testing for lead-based paint. This fee also helps the housing authority take care of any necessary repairs in excess of $50 during the lease period.

At the end of two years, the home buyer obtains a mortgage for the full purchase price, less the down payment and any principal that may have been paid during the lease period. The savings and loan uses slightly relaxed underwriting standards and provides permanent financing to the participants.

The program began with nine families, of which two have now closed their purchases. Currently, 15 families are participating in the program; the annual goal is 50 families. The average household income of current participants is $19,116, which is about 57 percent of the median income for similar families in Colorado Springs.

The lease/option-to-purchase program makes homeownership available to families that might otherwise be unable to attain it. As these families become homeowners and no longer require rental assistance, the housing authority can help other families in need. Since the program's inception, the city has committed $934,000 in HOME funds, and the lender has pledged to secure the additional funding necessary to make the program a long-term feature of the housing authority's homeownership efforts in Colorado Springs.

Contact: Eugene D. Montoya, Housing Authority of the City of Colorado Springs, 719/578-6334

Copyright 1997 - 1998 - 1999 - 2000
Affordable Housing and HOME
National Association of Housing and Redevelopment Officials (NAHRO)
630 Eye Street, NW
Washington, DC 20001-3736
Telephone: (202) 289-3500
Fax: (202) 289-4949