Rent To Own
Frequently Asked Questions - BUYER
How do I Rent To Own a house?
To initiate your lease to buy or lease-purchase, you pay an option deposit to retain the right to purchase the home. You pay monthly rent and possible premium payment. You may purchase the home on or before the end of the lease. If you purchase the home, the money you have paid as an option deposit and premium payments go toward your down payment on the home. If you decide not to purchase the home, you simply walk away.
How does Rent To Own work?
Rent To Own works when you lease a home with an option to buy on or before the end of the lease. You retain this option by paying an option deposit at the beginning of the lease and possibly extra premium payments each month. To initiate a lease with option to purchase, you first sign a contract. You then pay the option deposit which will be about 3 to 10 percent of the purchase price of the home. The option fee gives you the option to purchase the home you are renting at any point throughout the lease.
How does Rent To Own work with bad credit?
It’s easier to make Rent To Own work with bad credit than it is to make a mortgage work. While some sellers might check your credit, they are only checking to make sure your credit will be high enough for you to qualify for a mortgage by the end of the lease. Your credit can be bad when you rent to own. Rent to own can be the key for someone with bad credit to own a home. You just need to build your credit high enough during the lease to qualify for a mortgage at the end of the lease. We set you up with a team to help get you to the finish line of mortgage readiness.
How much is it to Rent To Own a house?
The price of a rent to own home depends on the market value of the home plus a slight premium to account for the what value of the home will be at the end of the lease. The option deposit is 3 to 10 percent of the purchase price of the home and due at contract signing.
The monthly rent payment would be calculated based on fair market rent for the area. Additional monthly deposit may be required depending on your option deposit percentage. If they are required, you will get credits based on extra money you pay each month that will go toward the price of the home at financing.
We do offer Equity Enhancement Program on some homes that will boost your credit based on your extra payments. Please contact us for details and to see if it’s available on the home you’re interested in.
Rent to own costs just as much as renting a home until you have enough money to buy one, as long as you do purchase the house you are looking at.
Is Rent To Own safe?
Rent to own is safe. It has its risks, but so long as you are aware of them, they are completely avoidable. For example, make sure that you can raise your credit score high enough to qualify for a loan at the end of the lease. Otherwise, you would lose your option payment and premiums because you didn’t purchase the home. If you are in our program, we make sure to set you up with all the tools for success in mortgage financing.
What do I need to qualify for a Rent To Own home?
There are no set qualifications because every buyer is different. Typically you will need proof that you have income stability, a clean background check, a credit score that can be improved enough during the lease term enough to qualify for a mortgage and the ability to meet financial requirements. This is part of our application process and we will discuss the requirements based on the home you’re interested in.
What’s the catch with Rent To Own homes?
Rent to own homes aren’t dangerous as long as you know about the potential pitfalls. The main catch is that if you don’t purchase the home, you lose your option deposit. It’s important to make sure that you will qualify for financing at the end of the lease before you sign the lease. It is always our goal to set you up for success in obtaining financing.
Can I Rent To Own with Section 8?
We don’t have a lot of experience with Section 8 but theoretically you can use your housing choice voucher to help pay for your rent and rent premiums during your lease. Additionally, some Public Housing Agencies offer a Homeownership Voucher Program you can use to make payments on the mortgage once you purchase the home. Please check with your local Public Housing Agency to inquire about vouchers when doing Rent To Own
Who shouldn’t Rent To Own?
You shouldn’t Rent To Own if you won’t be able to raise your credit score enough to qualify for a mortgage by the end of your lease. Our credit enhancement team will evaluate and advise you on what you need to do to raise your score.
What types of buyers benefit from Rent To Own?
-Individuals and families looking to rent before they are able to qualify for a mortgage. This saves having to move when they are finally ready to buy.
-People who have been turned down for a mortgage, but expect to qualify in the near future, and want to settle into a home.
-Buyers who expect to maintain and will work to improve their financial standing during a lease period with the goal of attaining an affordable home mortgage loan.
-Buyers with good credit and some savings available, but not enough for a full down payment on a home loan.
-People who are handy at repairs and maintenance who can build up and apply the dollar value of their skills toward a home purchase price.
What does a buyer need to do to become mortgage ready?
Rent to own buyers need to be committed to the purchase and to either rebuilding or maintaining good credit during the lease period. The purchase commitment is important because if the buyer walks away, the option deposit and any option credits will not be refunded. Rebuilding or maintaining good credit is vital because you will need to secure financing in time to make the final purchase at lease end. The buyer needs to set realistic financial expectations and have a concrete plan in place to meet their credit needs. Buyers with troubled credit histories may require professional help from a legitimate credit repair company. We will discuss the requirements as you progress through our application process.
How do I determine my monthly budget?
Our credit and income analysis partner will calculate this for you but in case you are curious what is required you will need to calculate your Front Ratio and Back Ratio to see how much they can afford to pay monthly on a qualified mortgage. To calculate, take annual gross earnings (earnings before any taxes), divide by 12 and multiply that answer by (.28) for the Front Ratio and (.36) for the Back Ratio. The Front Ratio shows total affordable monthly housing expenses (mortgage loan principle, interest, taxes and insurance) and the Back Ratio shows the total affordable monthly debt payments (including housing expenses and other ongoing debts like car payments). For example, for a $60,000 gross annual income, the monthly amount is 60,000/12=$5,000. The Front Ratio is $5,000*.28 = $1,400 per month, and the Back Ratio is $5,000*.36 = $1,800 per month.