What is RENT TO OWN
A Rent-to-Own house purchase (also “Lease-to-Own Purchase” or “Lease Purchase”) is a Lease combined with an Option to Purchase the property within a specified period, usually 5 years or less, at an agreed-upon price. The Tenant/Buyer pays an option fee of usually 10% of the sales price, which is credited to the purchase price. The Tenant/Buyer pays rent, and an additional rent premium that is also credited to the purchase price.
The Rent to Own program offers homeownership opportunities to consumers who can’t qualify for a loan from any source, but who are prepared to bet on themselves. The bet is that before the option period expires, they will qualify for the mortgage they need to exercise the purchase option. During the option period, they have the opportunity to rebuild their credit and accumulate equity while living in the house.
What happens if for any reason I do not exercise the Option to Purchase?
The Option to Purchase Agreement gives the Tenant/Buyer the Right To Assign the Option To Buy. The Tenant/Buyer may recover their option fee and rent premium by taking advantage of this right of assignment If the Tenant/Buyer simply walks away the Tenant/Buyer loses both the option fee and the rent premium.
Consumers who enter into the Rent to Own Program need to realize they need to actively work to rebuild their credit rating during the option period.
When Does Renting To Own Make Sense
If you are tired of renting and want to purchase a home, but your credit, income situation or other factors will not allow you to qualify for a home mortgage right now, then Rent to Own is for you. If insufficient credit is holding you back, then you need some time to fix it. By doing a Rent to Own, you get to live in the home you want to buy right now while you work on getting your credit fixed.
When You Should Not Do A Rent To Own Home Transaction
There are times when entering into a Rent to Own home transaction is a bad idea. Here are five situations when you should not be doing a Rent to Own.
- If you don’t have the discipline to change your financial habits if bad credit is the problem
- If you are not prepared to do what it takes to get ready for a mortgage eg. credit repair, setting up trade lines, paying rent on time
- If you are not sure that this is the right home for you
- If you don’t know how long you will stay in this town because of job or family reasons
- If you don’t have a steady income. Your mortgage will not be approved without a stable income source
