The most obvious benefit of taking the rent to own a home approach to home financing is that of locking in your future purchase price. Having this option allows many homeowners, particularly in today’s market, to proceed with confidence into a contractual agreement knowing that they will be able to purchase the home at an affordable price while taking the much needed time to put their finances in order.
If you are wanting to pursue the rent to own option as a way to lock in a future purchase price, there a few things that you need to be aware of.
The Lease Option Financing Route
In the 1960s and 70s a financial instrument was developed called a Lease Option. This lease option allowed future home owners the ability to secure future sale prices upfront, while leasing the home from the homeowner.
It is this Lease Option on general mortgages that make the rent to own option such an attractive solution for many home buyers. When making reference to a fixed future purchase price, we are actually referring to the Lease Option on a mortgage.
In most cases, the future homeowner (the buyer) will be assessed a fee to initiate the Lease Option on the mortgage. This fee typically ranges between 1 and 3% of the proposed selling price. For example, if you were wanting to take advantage of the Lease Option on a $200,000 home, you would pay (upfront) anywhere from $2,000 to $6,000 as a fee (aka deposit). It is not required that the fee be between 1 – 3%, your fee could be as low as $1, but it is important to realize that this fee is unlike a rental deposit: in most cases there is no refund.
The terms of this type of contract is negotiable, but typically lasts 12 – 36 months. There is no obligation to purchase the property (usually), but the flip side is that once the contract runs out, the seller has no obligation to renew the contract. In other words, if you are unable to get a loan for the house within the 12 – 36 month time frame, you will either lose the house, or you will have to redraft a new contract.
How To Ensure A Successful Lease Option For Rent To Own
Look at the market. Many landlords use lease options to sell their homes in a desperate attempt to unload an overpriced property. Be sure to check the housing prices of the area that you are looking to move into. If the price seems unreasonable, move on, there are plenty of rent to own options out there for you.
Realize your position as a high value asset to landlords. Ever since the housing crisis and economic downturn of 2008, landlords are having a harder time attracting “good” tenants. If you are the type of person that will take care of the house, pay your rent on time and honor your contractual agreements, demand the same from your landlord.
The rent to own housing option has plenty of perks, but none more obvious than being able to lock in your future purchase price. Now that you know a little bit more about the Lease Option, take a look at some of the listings in your area http://www.rentuntilyouown.com/