Rent To Own Your Home – Is It Right For You?
Have you ever considered the option of buying your home "Rent to Own"? If not, and if you're still struggling to finally get into a home of your own, it is definitely something worth considering. While this is an attractive way to go for many, Rent to Own also offers a few pitfalls for the unwary.
When you rent to buy, you enter into a rental or lease contract with the property owner and agree to purchase the property in the future. The length of this agreement is commonly 3 years, with some agreements stretching out to 5 years and some shorter.
The purchase price is set in the beginning but is based on the expected property value at the time the property is sold. For example, if the property value today was $100,000 and you agreed to purchase it 5 years from now, the agreed purchase price would be around $160,000, assuming an annual appreciation of 10%. Of course, this is only a projected ball park number and is negotiable.
Setting the future purchase price is really a crystal ball effort. If the property appreciates at a greater rate than estimated, the buyer (that's you) wins. If for some reason property values stagnate, you could lose. But, that is one of the uncertainties that face any property owner.
The greatest appeal to buying "Rent to Own" is that you do not have to qualify for a loan from a mortgage company. Many investors actually look for buyers with credit difficulties and assist them in getting their credit cleaned up or established so they can qualify for a regular mortgage when it comes time to purchase the home.
Your monthly rental may be higher than for a straight rental home. On the other hand, you may be able to negotiate with the seller to have a certain percentage of your monthly payment credited to the purchase price. Rental credit typically is about 50% but some investors will actually credit all of your rental to the purchase price. Again, this is negotiable. Strike as hard of a deal as you can. And keep in mind that if you move and do not end up buying the home for any reason, your total rental is forfeited! No Refunds.
You will also have to come up with an upfront deposit that can range from 3% to 10% of the market value of the home. Again, this fee is normally not refundable if you fail to complete a purchase so you need to be fairly sure that you want the home. Unlike a straight rental where you can pick up and leave and maybe only lose a month rental and cleaning deposit, there can be serious financial consequences if you do not go through with a purchase.
"Rent to Own" properties are fairly easy to find and range from starters to up-scale homes in nice neighborhoods. But not every home can be purchased this way so the trick is finding the right one for you. Look for signs and ads saying "Rent to Own", "Owner Carry", "Owner Financing", "Lease Option" or something similar.
Also check any For Sale By Owner ads. It may not have been the owners' intention to sell the home on contract, but it never hurts to ask! And don't let potential negatives of "Rent to Own" discourage you. They are only negative if you end up not buying.
Next time, we'll discuss more of the "positives".
