As the economy continues to tighten, fewer people find themselves with the capacity to qualify for a mortgage. Getting a bad credit home mortgage loan has become very difficult. Still, owning a home is a privilege that millions of American’s strive for.
This has led to an increasing trend of people choosing a rent to own house as a step in their ultimate goal of home ownership.
Rent to own houses have long been a favorite of real estate investors. For the new investor, they give them the opportunity to get their feet wet without a huge outlay of cash and without using their own credit.
But now, because of the current financial crisis, people that would have once qualified for a mortgage are finding themselves searching rent to own house listings. These people may have a below average credit score, or may just be self employed individuals who have difficulty verifying their income.
Whatever the situation, finding a rent to own house can feel like a dream come true!
Not only can families settle in and feel like they finally have their own home, but they can participate on any upside that the market may bring without risking the potential of loss. This is because a rent to own house lease gives the individuals the option to buy a home but generally does not require that they buy the home.
If the value isn’t there at the end of their lease term, (usually at least two years) then they have two options. They can either walk away or renegotiate with the home owner to buy the home at a lower price. Most home owners are just happy to have the home off their hands, and know that if you can’t buy the home due to decreasing value, no one else will be able to either.
So, for the future homeowner, their only risk is the option fee that they pay upfront, which is typically somewhere between 2-5% of the homes purchase price. They will then pay the agreed upon rent. A portion of this will be a “rent premium” which will be credited towards the purchase price in the form of a rent credit.
It is critical that potential buyers take careful consideration as to whether a house for rent to own is in their best interest. While the price and rent will be dependent on the current market, some care should be given to make sure that both reasonable.
It is important to note that while there are many great deals in real estate right now, these are available only to those who have the cash or credit to take advantage of them. An individual seeking a rent to own home should not expect the owner to discount the home because the buyer is asking them to wait until some time in the future to get their money. The potential of a full price sell is the reason that many homeowners are willing to consider offering their home as a rent to own house listing.
If you are considering a rent to own house, be sure to make sure the term of your rent to own house lease is long enough. A term of at least two years is advisable for several reasons. The first is that credit restoration takes time. For most people, one year just isn’t enough.
Also, you will want as much time as possible to build up equity in terms of both rent credit an appreciation. Because most lenders will consider a mortgage on a home you have been renting to own as a re-finance, any equity that you have will minimize the amount of cash you have to come up with out of pocket when it comes time to close on the mortgage.
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