Low-income earners in the United States are often eligible for the federal government’s Housing Choice voucher program, also commonly referred to as Section 8, to pay for housing. Renters who receive these housing subsidies may wonder whether they can be used for rent-to-own properties. Postings to online classified boards frequently advertise Section 8 rent-to-own opportunities, suggesting that the answer is a clear "yes." The answer, unfortunately, is not that simple.
How Section 8 Works
Public housing agencies administer the vouchers locally, using money allocated to the program by the U.S. Department of Housing and Urban Development. Once an individual is approved, he can find a dwelling of his choice, as long as the property owner accepts Section 8 vouchers. The tenant and landlord then enter into a lease, and the landlord and local housing authority simultaneously enter into a housing assistance payments contract. The PHA then pays the subsidy directly to the landlord, and the tenant is responsible for the difference.
How Rent-to-Own Works
A rent-to-own property is one in which the tenant pays the property owner rent, with part of the rent being applied toward the purchase of the property or toward a down payment. The rent-to-own agreement may allow the tenant to purchase the property entirely by paying the landlord as if the landlord were the bank. Alternately, it may allow the tenant a certain amount of time to secure a bank loan to purchase the home, with the portion of his rent designated for the purchase of the property to be used as the down payment.
HUD offers a program called the Homeownership Voucher Program through local public housing agencies. However, not all localities participate in the program. People in localities that participate in the HVP and already receive regular Section 8 vouchers can use these vouchers toward the purchase of a home, with approval of the housing agency. So you’re basically converting your Section 8 vouchers into HVP vouchers. The subsidy can go toward a mortgage principal and interest, mortgage insurance premiums, real estate taxes, property maintenance and utilities. HUD says nothing about using the vouchers for rent-to-own agreements. Each PHA can set its own criteria for the program.
The convoluted answer is that the answer depends on the situation and locality of a renter who wants to use his Section 8 vouchers for a rent-to-own property. Since local PHAs set their own criteria, some may allow this and some may not. Additionally, if the landlord is willing to "hold the note" on the property, or serve as the bank until the tenant has completely paid off the purchase price, then the PHA may treat the rent-to-own payments as mortgage payments, which are allowed.