If you’ve been on the market for a home but have been stuck renting because you don’t qualify the traditional way, there are other ways to speed up your path to homeownership. These programs aren’t super well known because when people get rejected for a mortgage, well, they often assume there are no other ways to get a home and go straight back to renting. And it can be frustrating, we get it. Home prices have increased over 7 times faster than wages in the last few decades. You’re sick and tired of spending money on rent, and you should be. Home ownership is one of the best ways to build wealth, and the banks are keeping you from getting to your goal.
In this post, we want to talk about Dream America and how it can help you realize your homeownership dreams sooner than you normally would. We’ll cover the pros and cons of Dream America, and we’ll talk about whether Dream America is a legitimate program in its own right. Hopefully, we’ll figure out whether this program is right for you or whether you should be looking elsewhere.
- What is Dream America?
- Pros and cons of the Rent-to-Own model
- What are the general steps to purchasing a home with Dream America?
- Who qualifies for Dream America?
- How long does it take to find out if you’ve been approved?
- How much does it cost to apply for Dream America?
- How long does it take to close on a home?
- Who is an ideal client for Dream America?
- What type of homes does Dream America accept?
- Where is Dream America available?
- Who do you get a mortgage with when working with Dream America?
- How much will rent be when Dream America rents the home to you for the year?
- Does any of the rent you pay get applied towards purchase of the house?
- Who maintains the house during the rental period?
- Dream America alternatives
- Can you terminate the lease or back out of the final purchase with Dream America?
- In conclusion
What is Dream America?
Dream America is a Lease-to-Own company that was founded in 2018 by Chris Innes. It operates as a fintech and real estate program that has a mission to turn renters into owners. They state that it isn’t their goal to simply have people rent with an option to buy; they want to put an emphasis on the buying aspect of it because they believe that home ownership is an important aspect of getting to financial independence and building wealth, especially generational wealth.
In short, Dream America will let you pick a home, and they’ll buy it. Once they deem you ready – and it is a clear and concise definition what they consider ready – they’ll sell the home to you. Of course, there are a bunch of details we’ve left out, but that’s the gist of it. Let’s get into it more below, but before that, we’d like to talk about the rent-to-own model in general.
Pros and cons of the Rent-to-Own model
Dream America isn’t your run-of-the-mill rent-to-own program. However, it’s good to know about the model as Dream America is basically an improved version of it.
Pros of Rent-to-Own
- When you find a home you like and you draft up a rent-to-own contract with the landlord, the two of you will agree on a price beforehand. Even if the price shoots up later on, the landlord will have to honor the originally agreed upon price.
- Rent-to-own allows you to essentially buy yourself more time to come up with money for the home.
- Alternatively, you can draft up a rent-to-own agreement with the landlord to pay your down payment in installments, and once the amount gets paid in full, the home is yours.
- You can also bypass problems of your credit score if it is currently too low. If a credit score of a certain amount is needed, you have time to work on it and get it up to par.
Cons of Rent-to-Own
- You have to make sure you know what type of rent-to-own contract you’ve agreed to. If it is a lease purchase, you’re obligated to buy at the end of the term. If it is a lease option, then you have the right to back out.
- Depending on the contract, you could lose an upfront fee, or payment installments towards your down payment.
- In a rent-to-own model, the renting or leasing cost will usually be higher than the market rate.
What are the general steps to purchasing a home with Dream America?
- Qualify for Dream America lease-to-own program. This is looked at on a case-by-case basis by real humans.
- Find your dream home. There are some restrictions in terms of available markets, which we’ll cover.
- Dream America buys your dream home.
- Dream America will then lease your dream home to you.
- You’ll then need to qualify for a mortgage, usually over the span of 12 months.
- Lastly, you purchase your dream home from Dream America.
Who qualifies for Dream America?
To qualify, at minimum, you must meet the following:
- 500 minimum credit score
- $4,000 minimum monthly income
- 45% or less in debt-to-income ratio
- The rent must not exceed more than 1/3 of household income
- You need to have a track record of 12 months of rent payments paid on-time
- You’ll need to have at least $5,000 in cash, whether that be from savings, 401k, or gift. That’s for a $150,000 home. You will need more if you wish to buy a home that’s more than that. This includes the option payment and onboarding fee.
To see if you qualify, you need to fill out an application. It’s always worth applying because every application is looked at on a case-by-case basis. After a short period of time, you’ll know whether you’ve been approved or not. Of note, be sure that you have at least $5,000 in your bank account at the time you apply, as that gets looked at and taken into account during the application process, not afterwards.
How long does it take to find out if you’ve been approved?
Officially, it takes 24-48 hours, given that you submit all your documents in a timely manner. That generally means that if you submit all the documents at once at the time of application, you’ll get your answer within that timeframe. However, since most people do not upload documents in a timely manner, it can take longer than that. To be safe, assume that at the submission of your last necessary documents, you’ll get your answer by 24-48 hours from then and then only.
How much does it cost to apply for Dream America?
It is completely free to apply for Dream America.
How long does it take to close on a home?
Provided you’ve been approved and have chosen a home, it typically takes 2-3 weeks to close on a home.
Who is an ideal client for Dream America?
Clients who work with Dream America to secure a home are usually people who apply for FHA or VA mortgages. It’s not very often that Dream America clients will get conventional financing. The credit scores required to secure a mortgage from these conventional lenders are increasing and excluding a lot of potential home buyers from getting a home.
Other than that, an ideal client is motivated to stay on track to buy the house within a year. Dream America underwrites their clients, and if approved, then they know that the client has a good chance to be able to qualify for a mortgage within a year. However, if the client doesn’t keep up with the outlined plan, they do have the option to renew the lease for another year. Dream America highly discourages renewals and states that if you plan to renew, that means you didn’t stick to their roadmap. Your money would have been better spent finding rent elsewhere and applying for a mortgage later down the road rather than working with them.
What type of homes does Dream America accept?
- Asking price of $150,000 up to the FHA limit ($400,000 max)
- Single family home or townhouses
- Dream America does not accept condos or manufactured homes
- Has to be new construction or resale homes
- Homes have to have been built in the last 15 years
- Has to pass home inspection (Dream America works with BPG which is the largest employee-owned inspector group in many states)
- Seller of home must agree to any necessary repairs
Where is Dream America available?
Unfortunately, Dream America is not available nationwide. As of now, they are available in the following cities:
- San Antonio
If you’d like to check if a particular property qualifies under the Dream America program, you can go to the Dream America Search page and enter in the property address. If it qualifies, it’ll show up.
Who do you get a mortgage with when working with Dream America?
Dream America has independent lender partners that they can refer you to. Additionally, their realtors also have relationships with lenders as well that you can work with to secure a mortgage. Ultimately, however, you’re free to go with whatever lender you want to work with.
How much are the fees involved in the Dream America program?
In the case of a $250k home, that’s a total of $10k due at the time of Dream America being under contract to buy the home.
How much will rent be when Dream America rents the home to you for the year?
It’ll be rented out to you at market rate adjusted for any property tax and HOA fees.
Does any of the rent you pay get applied towards purchase of the house?
10% of the rent you paid throughout the year will get applied towards the purchase of the house, assuming you’ve made all rent payments on time during that period.
Who maintains the house during the rental period?
You will be responsible for any routine maintenance needed on the house during the rental period. Typically though, Dream America asks for an American Home Shield Warranty, paid for by the seller, which means that if anything goes wrong with your home, you can just call American Home Shield and they’ll send someone to your house to get your problem fixed for you.
Dream America alternatives
Other similar companies that have lease purchase programs include:
- Home Partners of America
- Divvy Homes
- Pathway Homes
Can you terminate the lease or back out of the final purchase with Dream America?
You are legally obligated to buy the home once the initial purchase of the home by Dream America has been made. However, if you do not qualify for a mortgage by year’s end, they allow you to renew your lease on a yearly basis.
On the other hand, if you qualify for a mortgage earlier than a year, you can cancel the lease penalty-free and move on to purchasing the home immediately.
Dream America is a serious contender if you’ve been denied a mortgage through conventional means. Dream America gives you that extra time to get things in order, all the while securing your dream home relatively immediately. Their criteria are fair, and they really believe in their mission of empowering you to become a homeowner when other lenders may fail you.