Basics of the Rent to Own Concept
Rent to own can be an appealing concept for people who are interested in owning a home but have thus far been shut out of the traditional home buying process. Increases in home prices coupled with high-interest rates have left home affordability at its lowest point in thirty years.
Rent to own is a concept whereby a potential homebuyer enters into a lease purchase agreement that allows them to rent a home for a specific period of time prior to buying the property later.
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Reasons a homebuyer would choose the rent to own process include to save for a down payment, or to receive the proceeds of a home sale for use as a down payment, or to correct credit issues that keep them from being able to qualify for financing. It also allows them to experience a neighborhood prior to making a permanent investment. A typical option period for a rent to own property is usually one to two years, but may be as long as five years.
In addition to standard lease or purchase contract terms, the below items must be considered in the rent to own agreement:
- Is there an upfront option payment to be paid upon signing of the agreement, and how much is that payment?
- What part of that option payment will be applied to the purchase price of the property?
- What portion of the rent, if any, is to be applied to the purchase price?
- Who is responsible for maintenance of the property during the lease term?
- Who is responsible for repairs during the lease term?
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From a seller’s perspective, a home they have been trying to sell is now under contract, they have income from the lease, and have taken a deposit from the buyer that they may be able to keep in the event they do not complete the purchase agreement before the lease expires. Additionally, homeowners in pre-foreclosure or active foreclosure are in a compromised position. When faced with a mortgage default, that homeowner will be highly motivated to avoid a bank repossession, which makes an offer for a rent to own contract appealing.
The rent to own market has become much more sophisticated in recent years. Specialists have entered the rent to own market with new tools for potential renter/buyers. Prior to these innovations a person hoping to enter into a rent to own agreement would need to find a seller willing to cooperate with this kind of transaction. Often sellers who would agree to a lease option, or lease purchase agreement, were dealing with issues that prevented them from selling their property immediately. The issue might include something as simple as needing to begin collecting rent payments because they had committed to the purchase of a new home, or something more serious like a soft market where homes are simply not selling.
Real estate experts who deal in rent to own properties suggest that a person wishing to enter into this kind of agreement find an investor to purchase the property for them. Today there are companies set up specifically for the purpose of facilitating rent to own agreements. Some of those organizations include Home Equity Partner, Divvy Homes, HomeLight, Verbhouse, and Trio. Each company has its own criteria to be considered which may include the locations in which they operate, or designated vendors such as realtors, homebuilders, and lenders they work with. All such organizations will prequalify purchasers based on employment, income, credit, and possibly a background check. Persons interested in using sources such as these should check each organization’s website for detailed information about the ways in which they can help facilitate the rent to own program.
Rent to own is a sophisticated sort of real estate transaction and the written agreement can be complicated requiring a high degree of expertise. For this reason, it is recommended that you employ the services of real estate professionals such as a knowledgeable realtor, a professional home inspector, and a real estate attorney to advise you during this process.
Knowing where to find potential rent to own properties is important. And since the pre-foreclosure market is considered the best single place to look for rent to own properties, foreclosure.com is an important tool in this search. This website features thousands of pre-foreclosure properties, in all 50 states, to help with your search for a rent-to-own property. The database of pre-foreclosure property opportunities is the largest in the nation and is updated daily to ensure the information is fresh and accurate. This makes it an invaluable resource for finding the most current listings available.
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