What is Rent to Own Program?
Rent to own simply means that you rent the home with an option to buy it within a pre-defined period of time. The deal involves an ‘Option to Purchase Agreement’ plus an Occupancy Agreement. The future purchase price of the home is set in the agreement as well making it a long-term rent plus mortgage hybrid combination.
There are many other names for ‘Rent to own’ program including lease option, lease to own, rent to buy or lease purchase.
Advantages of Rent to Own Homes
There are numerous advantages of rent to own homes compared to traditional lease concept. But the biggest benefit is we say ‘Yes’ to our clients when the banks have refused their application. The prime advantages of this program include:
- Significantly lower down payment
- Monthly option credits help build equity
- Building improvements create real sweat equity
- Avoid high closing costs
- Safeguard against home price inflation
- Get time to repair credit score
How Does Rent to Own Work?
- Seller offers the home under ‘Rent to Own’ program.
- Buyer-tenant agrees to the terms of the landlord mentioned in the rent to own contract. This includes rent terms plus an option to buy the home in the future at a fixed price.
- The buyer-tenant makes a small down payment (non-refundable deposit) credited into the final purchase price during the purchase some years down the lane.
- The buyer-tenant pays rent through regular monthly payments. Some portion of this monthly rent, called Lease Option Premium, accumulates as additional mortgage down payment funds to be credited into the final purchase price.
- During the period of rent, the buyer-tenant works to repair his/her credit score or establish his credit rating.
- At the end of the tenure, the tenant is hopefully eligible for conventional mortgage financing through a traditional lender.
- With a mortgage pre-approval and an accumulated down payment through rent, the tenant buyer becomes a proud homeowner.
Rent to Own program brings people with tarnished credit rating back into the community. It helps them achieve their finance improvement goals while putting a roof over their head. Moreover, the tenant buyer maintains the home well because he knows in the end, its his home now.
Simple and effective!