How Rent-to-Own Works

Buying a home through a rent-to-own or lease-option agreement has become more popular in the aftermath of the 2008 financial meltdown. More people have been looking at creative solutions to buying a home, but it’s important to differentiate between creative and smart. Renting to own might be worth considering depending on your situation.

How Rent-to-Own Works

These deals become more common when the market is slow for two reasons. First, a slow market makes it difficult for homeowners to sell their homes. Second, when the market is slow, more people struggle with low credit and saving up for a down payment.

Rent-to-own, sometimes called a lease option or lease purchase, is a self-imposed savings plan for the renter/buyer. The renter pays an upfront fee, called an option fee, which guarantees the renter the option to purchase the home after a specified amount of time, usually one to three years. The renter agrees to pay the fair market value monthly rent on the home plus a monthly rent credit. During this time, the homeowner can’t sell the home to someone else. The price of the home is fixed at the beginning of the period, and the renter gets it at the preset price – whether the value goes up or down. After the time period is up, the renter can put their upfront option fee and accumulated rent credit toward the purchase of the home.

Read more at Freedom-Rent-to-Own.com

Who Benefits From A Rent-to-Own Property?

In the right circumstances, both parties can benefit greatly from a rent-to-own agreement. Tenants who take on rent-to-own contracts tend to take better care of the home since it will be theirs in the near future.

•Tenants that benefit from these arrangements include individuals who:
•Have mediocre credit and cannot qualify for a mortgage
•Don’t have enough employment history
•Cannot save up a down payment large enough for a mortgage
•The tenant has the opportunity to improve their credit or to gain further employment history. By the time the lease is up, the tenant should be in a good position to buy the home.

Not only will they have the necessary deposit covered (at the very least in part), but they will have already built equity in the home that they wish to buy without being penalized for poor credit history or lack of a down payment. Find out more here.

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For some potential homeowners, renting a home for a time before buying is an attractive option. It allows time to save money or otherwise get financially prepared before buying a home, and it also offers a way to get to know the property before committing to it. Regardless of your situation, a rent-to-own model could put you on the path to homeownership.

For credit-challenged former homeowners, a rent-to-own agreement (also known as a lease-purchase) allows them time to save up the required down payment, establish a longer job history, and deal with whatever is making it difficult to obtain a mortgage. For first-time buyers, the model gives them a taste of what it’s like to own a home without having to come up with a down payment or commit to a mortgage.

So is a rent-to-own agreement a good idea for you?

A lease-purchase may be right for you if:
•you have difficulty qualifying for a mortgage now but won’t in a year or two;
•you are having difficulty saving for a down payment;
•you believe interest rates will fall or home prices will rise over the next year or two and •you would like to lock in a price now;
•the owner will agree to refund all or part of your option payment; or
•you like the home and would like to live in it for years.

Do your research before you commit to a rent-to-own deal, and be sure it’s what you want.

Owning a home – it’s one of those things that we’re told we should do from early on in life.