Real Estate Law

Pennsylvania is taking a significant step toward expanding affordable homeownership with the introduction of House Bill 1696, known as the 'Lease with Guaranteed Purchase Option Home Ownership Program.' Spearheaded by State Representative Robert Freeman, this legislation aims to assist low- to moderate-income families in transitioning from renting to owning homes, thereby promoting neighborhood revitalization across the Commonwealth.

Understanding the Proposed Legislation

The proposed program introduces a lease-to-purchase model designed to bridge the gap between renting and homeownership. Under this model, eligible individuals would enter into a lease agreement with the option to purchase the home after a specified period. A portion of each month's rent would be allocated to an escrow account, accumulating funds to cover down payments and closing costs.

This approach serves multiple purposes:
- Credit Building: Tenants can build or improve their credit scores during the lease period.
- Financial Preparation: The escrow savings assist in overcoming financial barriers to homeownership.
- Market Stability: By locking in purchase prices and monthly payments, participants are protected against market volatility.

The Pennsylvania Housing Finance Agency (PHFA) would oversee the program, ensuring transparency and adherence to fair housing practices. Key provisions include clear terms for purchase options, safeguards against predatory clauses, and mechanisms for reinstating agreements in cases of default.

Eligibility and Target Demographics

The program specifically targets households earning at or below 80% of the area median income (AMI). Furthermore, at least 30% of the program's funds are earmarked for households earning less than 50% of the AMI, ensuring that the initiative reaches those most in need.

Addressing the Homeownership Decline

Homeownership rates have seen a notable decline, dropping from 68% in 2003 to 63% in 2016—the lowest since 1965. Contributing factors include:
- Rising housing costs outpacing income growth
- Limited access to credit
- High levels of student loan debt
- Insufficient inventory of affordable homes

By facilitating a structured path to homeownership, the proposed program aims to reverse this trend, enabling more families to invest in their futures and communities.

A First-in-the-Nation Initiative?

While lease-to-purchase models are not entirely new, Pennsylvania's statewide, government-administered approach appears to be unique. Other states have implemented various affordable housing initiatives, but a comprehensive program combining lease agreements with guaranteed purchase options, administered at the state level, sets Pennsylvania apart. For instance, states like New York and California have explored shared equity and community land trust models, but these differ in structure and administration. Pennsylvania’s initiative could serve as a pioneering model for other states.

Potential Impact and Considerations

Benefits:
- Increased Homeownership: More individuals can transition from renting to owning.
- Community Revitalization: Homeownership often leads to increased community engagement.
- Economic Mobility: Building equity through homeownership contributes to financial security.

Challenges:
- Program Funding: Sustainable funding is essential.
- Implementation Logistics: Requires clear guidelines and oversight.
- Market Dynamics: Fluctuations in the housing market could impact effectiveness.

Potential Benefits to Lenders

From a lender’s standpoint, Pennsylvania’s Lease with Guaranteed Purchase Option Program presents a unique opportunity to cultivate a steady pipeline of mortgage-ready borrowers. By enabling low- to moderate-income renters to build credit and save toward a down payment through structured escrow contributions, the program effectively reduces traditional lending risks and barriers. Lenders can engage these future buyers early, offering pre-qualification tools, educational resources, and tailored mortgage products designed for lease-to-own transitions.

Moreover, participation in the program could yield CRA credit and enhance a lender’s community investment profile. Strategic partnerships with the Pennsylvania Housing Finance Agency and local nonprofits also create avenues for outreach, brand visibility, and mission-aligned lending. With built-in affordability mechanisms and predictable borrower development timelines, the program invites lenders to innovate while serving an underserved but growing homeownership segment.

House Bill 1696 represents a proactive approach to addressing the affordable housing crisis in Pennsylvania. By offering a structured pathway to homeownership for low- and moderate-income families, the state aims to foster economic growth, community development, and individual financial stability. If successful, this program could serve as a model for other states grappling with similar housing challenges.

Contact the Real Estate Group at Bowles Rice for legal guidance on how HB 1696 and other upcoming legislation may affect your pathway to homeownership in Pennsylvania.

For more information, view the co-sponsorship memo at: https://www.palegis.us/house/co-sponsorship/memo?memoID=45059

View the Bill at: https://www.palegis.us/legislation/bills/text/PDF/2025/0/HB1696/PN2086