Rent to own real estate properties, also called lease to own or lease option homes, provide a way for people to live in a house even if they do not qualify for a mortgage yet, or if they are not yet ready for an ownership commitment. This can be done for one to three years, after which the person who is renting the property will be given the option of buying the property.
Owning rent to own real estate properties is not the most popular option out there, and with little demand for it, there are limited options for those who intend to go with this plan. Also, contracts for rent to own real estate properties tend to be more favorable towards the landlord, which obviously makes it disadvantageous to the renters.
Despite of all these, there are still some people who manage to happily purchase their own homes through this scheme. Here, we will be discussing the situations that make subscribing to a rent to own real estate plan a good idea, as well as important things you should know about renting to own.
Reasons for Renting to Own
The most common reason why people are considering renting to own is because they lack qualification for mortgages. What does this mean?
Nearly qualifying for a mortgage implies that certain factors related to you or to your finances are hindering your chances of qualifying for a mortgage. If any of the situations below describe you, renting to own might be the best option for you. Some of the factors that can affect your choice include:
•A bad credit score, which includes scores lower than the minimum qualifying score of 620, yet a continuous improvement on your current financial situation
•A high debt to income ratio, but not too much that it would prevent you from providing a budget to pay and reduce your outstanding debts
•You may have landed a job that pays well, yet you have not been there long enough for lenders to consider your source of income as stable enough for them to trust you to repay the mortgage
•You could also be self-employed, yet you have not established sufficient track record to earn the trust of lenders
What Fees will you be Paying?
The fees involved in rent to own properties are typically light. However, you really have to be sure that you intend to purchase the property eventually because there are non-refundable fees included.
Rent to own real estate properties come with lease option fees in order for you to secure your purchasing rights to the property. This lease option fee stands at 1% to 3% of the total purchase price, and you cannot refund this if you decide to move out.
Aside from the lease option fee, you will also pay for rent credits, which are a portion of the monthly rent fee you pay which go down to your down-payment once you decide to buy. If you decide to move out, it is also a way for the landlord to make up for the loss they have experienced when the property was out of the market.
If you do not buy the property in the end, you will have wasted hundreds, if not thousands, of dollars on non-refundable fees, as well as rent credits.
To sum it up, renting to own is not the ideal setup for everyone. In fact, it is not even the best option for a lot of people. Not only will you have a limited selection of homes, but you will also be subject to paying fees which you will not be able to refund if you decide to bail out.
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