If you’re interested in buying a house, especially if you’re like so many of us with “bad credit,” you may be exploring your options to find the best deal for you and your family. You’ve probably come across the terms, “Lease Option,” “Lease Purchase,” or “Rent to Own.” If you’re not sure what those terms mean or how they work, you’ve come to the right place! Here’s some information about what a lease option is and why we think it might be a great choice for you!
A number of professionals in the real estate world dislike the “Lease Purchase” or “Rent to Own” method of selling a home.
I agree, this can be a potential money pit if you don’t set things up the right way.
For instance, an unsuspecting tenant could lose thousands of dollars trying to purchase a home with this method if they don’t do their homework before signing the paperwork. With that said, when a rent to own transaction is structured properly and objectively there are many benefits to the home buyer and seller. See below to read those benefits.
Here Are A Few Benefits:
- When you sign the option agreement with the homeowner, you lock in the option price at today’s price. If you sign a 24 month option agreement in an appreciating market, you get to KEEP all that equity and buy at the option amount originally agreed on 24 months earlier. With the market as low as it is today, you’re almost guaranteed to earn equity- that’s like free money!
- Your option fee goes toward the purchase price. The option fee is the fee you pay to lock in the purchase price upfront. Instead of just paying the fee like a security deposit with a regular rental, with rent to own the money goes toward purchasing the home. This is just another way that rent to own homes help you afford your dream home and become a homeowner.
- Each month a portion of your rent is credited toward the purchase price of the home. If structured correctly, these credits can be used to pay for your closing costs when you go to close on the home. So, you can setup the lease purchase so you bring very little money to the closing table when you go to purchase! Unlike in a typical rent situation where your monthly rent check goes to the landlord and essentially out the window; with rent to own, some of your monthly payment is working to pay off your home! This is a huge benefit of buying with a rent to own.
- You control the property during the option period. Just imagine- you and your family are living in a rental home. All of your belongings are there, you’ve decorated and made the house a home. You’re comfortable and happy… until one day you get a call from your landlord. He/she has sold the home and you need to pack up and get out. Now, not only are you homeless, but you have to go to all the trouble of packing up everything you and your family own, find a way to move it all, and don’t forget- find a home to move into! We get calls from tenants constantly who have to find a new home because the home they are renting sold. One way to avoid this tragic situation is by using a rent to own. The homeowner can not sell the home while you are renting and leave you up the creek to find a new home to rent. YOU are in control and while under contract, you are the only one with the option to buy the home! Talk about peace of mind!
- You can take your time shopping for the best possible loan available when you purchase. Also, you don’t have to rush to meet your closing date like when you do a straight purchase. This happened to me and my wife! We negotiated a deal on a bank owned home with a 30 day closing that carried stiff penalties of $100 until the loan is closed, including weekends! A rent to own home allows more flexibility, saves you money, and saves you stress!
Those are just a handful of the benefits with rent to own homes.