Exploring The Rent To Own Option

Many have found their dream homes in today's market, by the process of Rent to Own. Renting to own is fast becoming the popular choice of the many investors in the real estate market. This is just like the method used for rent to own vehicles, wherein the vehicle is first leased, and during the lease if the person likes it, the decision of buying it is taken.

Renting to own benefits both parties. Sellers who have already bought a new house will be spared from paying two mortgage payments at once, and in a slow housing market with many homes for sale, this may be their best option. Buyers who can't afford a house yet may be able to get one more quickly.

Advantages to Buyers

Financial reason is the main factor why a rent-to-own agreement attracts buyers. If buyers don't have enough for the down payment or the monthly income to qualify for a home loan but believe they will within the next couple of years, a lease option gives them the opprtunity to railroad through the path to homeownership. By signing a contract now, the buyer locks in a purchase price, which means no worrying about increasing home prices. (Note: In a rapidly appreciating real estate market, the seller of a lease-option property would probably want to add a clause to the contract allowing for the price of the home to increase with the market.)

The buyer also does not have to worry about coming up with the money for property taxes or homeowners insurance, and the seller will usually continue to pay for and complete any maintenance and repairs on the home (unless stated otherwise in the contract). Finally, by living in the home before deciding to purchase it, a buyer gets the convenience of a lengthy test drive on the home before jumping into a major financial commitment. Best of all, if the buyer decides to walk away from the deal, the only consequence is the loss of that portion of the rent paid that was above market rate plus the options fee. However, if the buyer ends up acquiring the property, the seller will credit part of the rent back to the buyer, often more than the portion of rent that was above market rate.

Option Fee and Rent Premium

Renters also have to pay an option fee and then a rent premium. The option fee is a certain amount that the renter pays the seller. If, at the end of the lease period, the renter buys the house, the option fee becomes part of the down payment. If the renter doesn't buy the house, the option fee becomes income for the seller. Rent premium is an amount slightly above the typical rent, with a portion of that money going towards a down payment.

Aside from being just another financing option, the rent to own process is perfect for the prospective home buyer who might have trouble qualifying for a loan. Many Lease-Purchase programs allow the occupancy of a home for up to 12 months prior to purchase, allowing the buyer to save for a down payment on the same property if he or she is facing credit issues which might otherwise make buying any home impossible. Normally these lenders require a 3% to 5% down payment of the purchase price.

Purchasing The Property After The Lease Option Agreement

Once you do come to a decision to purchase the property, the seller will credit part of your rent back to you, usually more than the portion of your rent that was above market rate. You can put this money toward a down payment and closing costs, or keep it. The purpose of the above-market rent is to give the seller an incentive to complete the transaction. If you do not purchase the property, all of the rent you paid remains with the seller, giving the seller an incentive for taking the property off the market during the time you were renting it.

Also, take note that option consideration is not a security deposit. It is a non refundable payment toward the purchase price and is 100% credited toward reducing the price of the home. Giving back rent credit helps a family to buy a home more quickly than they could trying to save 10% or 20% to put down on a new home purchase, allowing them a head start toward building equity.

Finally, any who take advantage of the rent to own process finds it worthwhile if for no other reason than the peace of mind achieved. Tenants have full control of the home and can maintain it or improve because it will be theirs when they exercise their option to buy.

1888ownlater.com, a company that provides Rent to Own services to buyers, attempts to build and create value that doesn't currently exist in today's market. They accomplish this through quality referrals from tenant buyers, sellers, and landlords.