Posted on Tuesday, 8th December 2009 by admin
Rent to own is an alternate method of buying a home that can provide a solution for those who cannot buy a home using more traditional financing, or who do not want to buy a home using traditional methods. Under a rent-to-own plan, a portion of the rent you are paying for the home that you are living in can be used as a down payment towards the home. This method can be useful as it can help you save up a down payment that you might otherwise be unable to come up with if your income won’t allow you to pay rent and save for a significant down payment. This method can also allow you to build up equity in a home while you are living there, before you buy it. You can then use the equity you have built up under your rent-to-own agreement to qualify for a more traditional mortgage to buy the residence.
How Does Rent to Own Work?
When you enter into a rent-to-own agreement, you agree to pay a higher-than-normal amount of rent for a set period of time. Usually, rent to own agreements are two years long on average, although this figure can vary and a rent to own agreement can be set for any period of time you and your landlord agree upon.
The rent-to-own agreement gives you the option or the right to buy the home at the end of the rent-to-own period for a price that you agree upon in your original rent-to-own contract. Although you have the option to buy the home, you are not required to do so. If you do decide to buy the home at the close of the rent-to-own agreement, a portion of the money that you have paid in rent goes towards your down payment on the home and you will be able to buy the home for the balance of the pre-agreed upon price. Usually, you can take a conventional mortgage loan at this point, using the money you already have invested in the home as equity to guarantee the loan.
If you decide not to buy the home at the close of the agreement, you simply forfeit the extra rent payments that you made. Those payments acted as “consideration” for you, which is a legal term that means you paid that rent for the privilege of being able to buy the home if you want to.
Finding a Rent to Own Arrangement
Some homes and properties are offered under a rent to own agreement. You can find these offerings in real estate listings, local newspapers or classified ads. If you are already living in a rental home, you can also try asking your existing landlord if they would be willing to consider a rent to own contract. Some landlords will agree to this to protect themselves in case of falling property values- the landlord will either earn extra money or have a guaranteed buyer for the place when the contract ends. Furthermore, renters who are considering buying a property typically take very good care of the property, so it can give them peace of mind. While not every landlord will agree to a rent-to-own contract, some might and it is worth asking if you are interested in purchasing a home using this method.
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