Lease-Purchase Option: Now Worth a Look

Fannie Mae, Freddie Mac, and housing agencies and nonprofits across the country have teamed up to establish lease-purchase programs to help low- to moderate-income households achieve homeownership.

Under a traditional lease-purchase arrangement, the home buyer pays a monthly rent that includes funds to be put toward the down payment. In a matter of one to five years, they are given a mortgage and become the owners of the property.

Under Fannie and Freddie's programs, however, the real estate is purchased by a housing authority or nonprofit that holds title to the property until the buyer secures the mortgage. Traditional lease-purchase agreements are formulated by the landlord and the buyer, and most must be ironed out by the courts because they fail to include necessary details and contingencies.

The government-sponsored enterprises hope to avoid that by explaining all of the terms in detail; and the borrower often receives an education as well as a cleaner credit record. Once the renter becomes the homeowner, the interest they pay each month is tax deductible.