How You Can Get a House on Rent to Own

Before the financial crisis of 2008, there was what was called the rent-to-own model. The way this worked was that buyers would be able to purchase the house or condominium that they are renting from a particular landlord. This was normally only offered by private homeowners.

After the crisis occurred this option became much more available and even 10 in large real estate investment firms would begin buying up foreclosed homes and setting them up on a rent-to-own program on a much larger scale.

It was during this era that the rent-to-own model became much more popular the way it works is that tenants can have a part of their monthly rent payment accrue toward down payment double eventually allow them to buy the home that they're renting. you have likely seen many advertisements for rent-to-own I just become much more popular in the last few years this article will explain in-depth how it works.

A rent-to-own option may be a good fit for you if you're in a situation where you currently are renting or want to rent but eventually do want to purchase a home down the road these even work with Condominiums. If your credit is not very good and it requires some time for you to build it back up this could also be a great option for you as well.

Most rent-to-own options are set up within a 3-year period. that means that the tenant signs a rental agreement or lease with the option to purchase the condominium or house within 3-years.  The lease is set up so that the renter’s payments they make every month will include an additional payment dinner cruise and goes towards a down payment I'm purchasing the home. how much the rental payments are and how much a cruise towards the down payment as well as the overall monthly payment and the purchase price of the home will all be included in the lease contract on a rent-to-own situation. 

It's imperative that you can get pre-approved for the mortgage at the purchase price of the home stated in the contract before you sign a rent-to-own lease with your landlord. Rent-to-own may not be a good option for you if you're unable to get approved for the loan on the balance of the home after the down payment has accrued.  Unfortunately, it's possible that your rent price could cause your monthly fees to increase as the amount needed for the rent payment.

If your rental payment every month is $1,450 and 250 of that is going towards the down payment with a purchase price of $250,000 in a 3-year period, you would have built up $9,000 toward the down payment which would only be 3.6% of the purchase price.

Now if you didn't save any other money for that three-year run your option might be a 3.5% FHA loan as long as you had the pre-approval in the beginning so that you can afford the entire purchase.

If you're unable to get pre-approved and therefore unable to purchase the house you could always ask the seller if you could rent for cheaper without the rent-to-own option. Often this is available but you would have to do it on a case-by-case basis with the landlord any option we just did above it would make you rent $1,200 a month.

There is simply no industry standard we're putting together a rent-to-own contract or rent-to-own leases so it is very important that you have an attorney look at your rent-to-own contract or lease before you sign it. It's very important to make clear who will be holding the down payment money and any specific state or tax liabilities that could be yours.

This is an ideal option if you're not in need of moving and you're convinced this is the home that you want to own. It makes the rent-to-own option an all-in-one purchase. However should you need to move because of work, career, or some other situation then that type of option likely will not work for you

From the landlord's perspective, a rent-to-own offer allows people who maybe don't have the money upfront for a downpayment to still have the opportunity to purchase your home. you may be in an area that's more rent-oriented or a lot of the people in the area simply don't have the credit available and they need time to build up that down payment so that they can purchase the home. It also allows renters a chance to slowly build up their credit while they're paying their down payment at the same time. it's very important as a seller to make sure that the buyers have high enough credit to qualify for the loan when it is time to buy.

As a seller, it is imperative that you have a lawyer create the contract release for you to make sure that all your bases are covered and then all the important details are there for any kind of a rent-to-own situation.

Here is an article for buyers on whether you should rent or sell your home https://www.homelight.com/blog/should-i-rent-or-sell-my-house/

Some of the main benefits to the seller in a rent-to-own type situation are you can lock in the sale price of your home now and you won't have to be concerned when it with any sort of Market fluctuations that may happen in the future. Also, any tenant that is in a rent-to-own situation is likely to treat the house much better because they know they're eventually going to own this home or condominium.

A large downside to the rent-to-own option is that you may end up with a  buyer or need to sell at a date sooner than what the lease allows and you would also be locked into the terms with your rent-to-own tenant. It is possible that you can make this negotiable but it would need to be put into the contract to allow you some flexibility.

There is a difference between institutional landlords and individual landlords. Private sellers or individual sellers who have a rent-to-own option normally have leases that run for three years. Real estate investment companies or institutional owners often have 2-year lease contracts which may be extended for up to four more years after the initial lease term. This helps to allow more flexibility for both the buyer and the seller.

there's much more scrutiny involved and institutional rent to own outfits because they're usually publicly traded and often the contractor much more stringent because they involve consumer protection. The contracts are extremely transparent about the Rules of Engagement where the money is being held and how many disputes will be resolved.

If you need credit help one of the large rent-to-own companies may be the way to go they normally offer consumer help with credit counseling and repair and in some cases this even a requirement before they will sign a rent-to-own agreement. However, if you have great credit you'll likely want to avoid this large situation and stick with individual private sellers.

The rent-to-own option has really come into its own in the last 5 years and it is an absolutely Stellar option in today's struggling economy. it allows people with less than perfect credit the ability to get their credit rebuilt, build up the money for the down payment over time, and still end up becoming a homeowner which for most people is the largest single purchase they will ever make in their lives.

It's not hard to find rent-to-own leases and situations in your area. However, we cannot stress strongly enough that you must have a lawyer look over any agreement before you sign and make sure that you can get yourself pre-approved for what the house will cost when the down payment amount has been reached. It is vitally important that you do both of those things if you don't the rent-to-own option could be an absolute disaster for you.

If you already have good credit and you want to give the rent-to-own option to try your very best bet you going to be with the individual private owner situation. Make sure that the contract spells out who will be holding the money that builds up for the down payment, an exact selling price of the house, an exact date that this will occur.

Any contract that does not contain this valuable information you should not sign, simply turn around and walk away. Again that's why it's very important that you have an attorney who's first in real estate and contract law to look over the lease agreement to make sure that you understand all of these key points and understand how much flexibility you have and how much flexibility the owner has in the contract if any. you don't want to get halfway through building up the amount for the down payment only to have them sell the house out from underneath you.

Here is a great article on how to find rent to own homes in your area https://www.homelight.com/blog/buyer-how-to-find-rent-to-own-homes/

Author Bio

Will Foster | First State Bank Mortgage Senior Loan Officer

I became a mortgage lender in 2010, right after the "bubble" popped, and the mortgage industry underwent an incredible transformation. This has given me a unique advantage in the fact that I have never known anything other than the highly-regulated world we now live in.

Throughout my years of experience, my primary goal has been to keep up with the constant changes in the industry so I can help my clients investigate all of their options and maximize savings. In addition, because I specialize in Conventional, FHA, USDA, Jumbo, portfolio, and VA refinances and purchases, I can help a wider variety of individuals, families, and investors identify and secure the right loan to best suit their future interests.

The mortgage process can be a little confusing and even overwhelming these days with all of the regulations.  I guide my clients through the process from start to finish, and I try and make it as painless and hassle-free as possible.