What is Leap — and is it right for me?
Leap is Nabr’s lease-to-purchase pilot program. Leap unlocks homeownership benefits for consumers who might not yet be in a position to afford a down payment.
By Andrew Domont and Maria Khimulya
Home value appreciation is one of the main sources of wealth creation for people in the U.S. Most Americans want to own a home, yet many do not have the savings required to make a down payment for a mortgage. That means they’re stuck paying rent — which makes saving up for a home even harder. Each rent payment is, essentially, money thrown away.
Nabr was founded, in part, to address the housing crisis by building sustainable, urban apartments for ownership. Leap, Nabr’s lease-to-purchase program, was created for people who know they want to own, but aren’t yet in a position to afford a down payment for a mortgage. With Leap, you sign a lease agreement that includes an option to purchase your chosen Nabr home at a locked-in price at a later date (up to five years). A portion of each monthly payment goes toward your home price — so, unlike rent, each monthly payment brings you a little bit closer to owning your home. By the time you complete the program, you’ll have chipped away at your home price, had extra time to save up for a down payment, and potentially even captured some home equity gains if your home appreciated in value above your locked-in price (for reference, in Santa Clara County, home prices have increased an average of 5.9% annually over the past 20 years*).
In this blog post, we’ll explain how Leap works, its benefits and risks, who Leap is best suited for, and how to enroll in our pilot program.
How Leap works
(1) Select a Nabr home and customize your Leap terms—Find and reserve a Nabr home you love in the beta version of our Design Studio. Then, work with a Nabr advisor to customize your Leap terms:
- Locked-in Purchase Price — For many, saving for a home is a moving target: you’re saving enough for today’s market, but then home prices outpace you, and you’re left behind. Leap allows you to lock in the future purchase price of your Nabr home, either at or above its current price — so the target finally stays still. Why choose to lock in a higher price? Although you’ll pay more overall, locking in a higher future purchase price results in lower upfront and monthly payments during your Leap option period.
- Leap Option Period — Choose how long your Leap purchase price will be locked in. The minimum option period is 3 years and the longest is 5 years. Why choose a shorter period? A shorter Option Period results in lower upfront and monthly payments. A longer Option Period results in higher upfront and monthly payments; however, it gives you more time to save up for a down payment, weather economic downturns, and benefit from potential growth in your home’s value.
(2) Make a non-refundable Purchase Deposit—Similar to a mortgage, Leap requires an upfront payment (“Purchase Deposit”). However, Leap offers a significantly lower barrier to entry — between 1.5 and 4.5 percent of your Locked-in Purchase Price. Compare that to a mortgage, which often requires a down payment of about twenty percent. One hundred percent of the Purchase Deposit will go towards your home purchase; it won’t be returned if you decide not to purchase at the end of your Leap Option Period.
(3) Lease—Sign an initial two-year lease, with your monthly payments fixed for the first two years. Your monthly payment includes homeowners’ association (HOA) expenses and real estate taxes. After the initial two-year period, you’ll need to renew your lease every year. When you renew, your monthly payment will only change to cover any increases to HOA costs and/or tax rates. It’s simple: move in and make monthly payments, just as you would with any rental.
(4) Accrue Purchase Credits—We set aside a percentage of your monthly payments towards your home purchase (these are your Purchase Credits). Over the course of a year, you’ll have earned at least one percent of your Locked-in Future Purchase Price. For example, if your Locked-in Future Purchase Price is $1M, you would have $10,000 in Purchase Credits after a year of monthly payments. After five years, you would have $50,000 in Purchase Credits — meaning you’re $50,000 closer to owning your million-dollar home. One hundred percent of the Purchase Credits will go towards your home purchase; it won’t be returned if you decide not to purchase at the end of your Leap Option Period.
(5) Convert to purchase—You can purchase your Nabr home at any time after the first year of lease and before the end of your Leap Option Period. Most people will likely acquire a mortgage at time of purchase.
Benefits and Risks
If at the end of your Leap Option Period, your home has appreciated in value, that appreciation is yours to keep — you’ve accrued equity you never would have accessed had you been renting. Plus, you’ve had the span of the Leap Option Period to build credit and save for your mortgage down payment. We are also currently working with partner banks to offer you a way to use the appreciation of your home to reduce your future down payment. More details coming soon.
If at the end of your Leap Option Period, the market price of your Nabr home is below your Locked-In Purchase Price, it may not make financial sense for you to exercise your purchase option. In that case, you can leave your Nabr home, but you’ll lose your Purchase Deposit, any accrued Purchase Credits, as well as any non-refundable deposits paid for upgrades. To offset this macroeconomic risk, we offer you the ability to choose longer option periods, up to five years, in order to weather downturns in the housing market. To be fair, if you had purchased your home upfront with a mortgage, you also would have incurred the risk of home price depreciation.
Is Leap right for me?
If you currently have the means to make a down payment, a mortgage is most likely the best financial option for you, as you’ll accrue more equity. If you don’t yet have enough saved for a down payment or need time to build credit, Leap can serve as a helpful bridge to a mortgage — and lets you experience the benefits of homeownership sooner. You can explore the required payments/benefits of a mortgage side-by-side with Leap using this calculator.
How do I join the pilot program?
In order to join Leap in our first building, SoFA One, you’ll need to reserve a Nabr home with a refundable $1,000 reservation fee and, during your reservation process, check the box showing your interest in Leap. Please note that by reserving a Nabr home with a Leap slot, you are only reserving a right to participate in the program — you’ll have time to review and sign binding contracts and lock in your terms later in 2023. The number of available Leap slots in SoFA One is limited. If you’re interested, the first step is to create a Nabr profile here.
*Housing markets are unpredictable, and there is no guarantee that such a trend would continue into the future. Data by U.S. Federal Housing Finance Agency, retrieved from FRED, Federal Reserve Bank of St. Louis.
Check out our next post: “How does Nabr’s building system work?”
