Meeting the big down payment: a small-steps way to home owning

If the down payment is too high for that dream house you want to buy, don't give up the idea just yet. It all depends on the state in which you live, according to David B. Allen, president of HOME Inc. here.

Mr. Allen has successfully test-marketed an approach to home ownership which gets rid of the big down payment, a familiar deterrent to those attempting to buy their first house.

Of the 42 million potential first-time home buyers in the 1980s, in fact, fewer than 10 percent will be able to put together a down payment under the existing conditions of high prices and high interest rates, according to people in the business.

In response, HOME Inc. (Home Ownership Made Easier) has given its four-step purchase plan a thorough testing in four states --Oregon, Washington, Arizona, and California) where 15 houses were sold to first-time buyers.

The plan grew out of Mr. Allen's own experiences both as a real-estate investor and supervisor of real estate for others. He was joined in the venture by John Teuber of Phoenix, Ariz. The men met when they were associated with the college musical group, Up With People.

The 15 homes first were bought as investments by the two men and then sold through Mr. Allen's four-step plan.

"What we usually look for," he explains, "is a young couple, each with their own income, but who haven't been able, or had time, to really accumulate the nest egg that could become a down payment."

Some 52 percent of today's young families meet the two-income qualification, he reports.

Here's how the plan works:

* The buyer agrees to pay, over a period of 15 months, a fixed rent, and also to make an option-to-buy payment which usually is $200 to $400 a month over the basic rent, or a full monthly payment of $600 to $800.

* After 15 months the option money --$3,000 to $6,000 -- is credited by the seller against the purchase price of the house. The purchase price is permanently set at 15 percent above the market value of the house on that day. The option money is nonrefundable if the buyer decides at the end of the 15 months not to take the house.

* If a buyer decides to take the house, he then signs a 24-month contract of sale which confers ownership on the buyer with the obligation to pay taxes, insurance, and upkeep. Any appreciation in the value of the house from the 15th month is to the credit of the buyer.

* As the end of the 24-month contract period -- the 39th month -- approaches, bank financing is arranged for the buyer with the assistance of HOME Inc. The mortgage money pays off all prior debts in connection with the house and the buyer begins to make the mortgage payments to the lending institution.

The company generally requires that a couple have an income level which is equal to three times the monthly rent, plus the option payment. Mr. Allen adds, however, "that from 10 to 15 percent of all potential home buyers qualify for this plan."

To bring his sales program to the notice of prospective sellers, Mr. Allen recently signed an agreement with E. G. Stassens Inc. of Portland, under which the Stassens firm will act as broker to potential sellers while Mr. Allen's firm will act as broker for the buyers.

Under the arrangement, HOME Inc. is selling its expertise with buyers to homeowners who are looking for a buyer. In the test program, the homes were first bought as investments by HOME Inc. The arrangement with Stassens' firm is on a flat-fee basis.

An initial fee is paid to HOME Inc. by Stassens which is equal to 1 percent of the value of the house at the time the buyer and seller are brought together. At the 39th-month level, Stassens pays another -- and final --fee of 1 percent, based on the value of the house at that time (Step No. 4).

In addition, should the investor (home seller) wish, HOME Inc. also will manage the property during the 39-month period for a f ee of 5 percent of the monthly gross income to the investor.