As mortgage requirements stiffen, many renters are exploring alternative options, like rent to own, to experience the American dream.
Rent to own is a method of homeownership that describes a two-part transaction. First, the buyer rents the home for the period of time stated in the contract. During this time period, the buyer may exercise their right to purchase the home for the agreed-upon amount in the sales contract.
Rent to own purchases serve a dual purpose. First of all, it allows the buyer to live in the house while they save up their down payment money for a future purchase of the home. Secondly, the rent to own purchase plan gives the buyer time to fix any credit issues.
Besides having an option to buy the home while actively renting it, there are also other benefits to buying a home using the rent to own purchase plan.
One of the greatest benefits of this plan is that the monthly rent goes towards equity in the home. This means that a portion of the rent is credited towards the down payment or the sales price every month. So instead of paying rent and letting it “go down the drain” every month, the house is building equity.
When buying a home, there are additional expenses, such as large down payments and closing costs. However, in a rent to own purchase, the only requirement is a one-time option fee and rental security deposit.
The requirements for a rent to own purchase are much more flexible than a traditional home purchase. Credit is less of an issue because the monthly rent payments demonstrate an ability and intention to buy the house. This in turn helps generate trust within the buyer-seller relationship.
The option deposit, paid at the start of the transaction, gives the buyer the right but not obligation to buy the house at some point in the future. Because it is included in the purchase price, the final purchase price is ultimately reduced.
Because the house is being rented, there are no property tax responsibilities on a rent to own home. This enables the buyer to save those additional costs while living in the home.
As the owner of a house, the buyer is solely responsible for any and all breakdowns and maintenance issues. This is not the case with rent to own purchases. In this instance, high-priced maintenance problems are deferred back to the seller for repair. This allows the prospective homeowner to try before they buy.
If the prospective buyer can’t purchase a house due to credit issues, the rent to own concept gives them time to build income and repair credit history while renting the house. By the way, punctual payments will always improve credit scores.
Standard rent to own agreements allow the prospective buyer to walk away with little to no consequence if they decide not to purchase the property. The only thing at risk, of course, would be the option fee.
The prospective buyer can easily determine their comfort level with the house, the area, neighbors and schools before officially buying the home.
The sales price is usually determined at the time of the initial agreement. This lets the buyer know exactly how much needs to be saved for the actual purchase of the property.
The rent to own purchase method offers a simple way for credit-challenged buyers to own their own home. As with any transaction, we strongly recommend partnering with a knowledgeable real estate investment company to navigate the process and answer any questions along the way. So don’t wait. Give us a call now to explore all options.
Aecom Investments is a progressive real estate investment company that is focused on both new and second-chance homeownership and community redevelopment. Call us now at (877) 753-5956 or contact us at [email protected] to learn more.