Do you want a home of your own, but can’t qualify for a loan or can’t afford the down payment? One option is to rent to own. This method of home purchase has become very popular in recent years, especially after the 2008 recession. Companies such as Rental City (http://rentalcity.ca) provide potential homeowners a chance to eventually own their own home. Rent or lease to own differs from the traditional home sale transaction.
When someone usually buys a home, they make the sellers an offer. If that offer is accepted, the seller and buyer close on the sale, determine the final costs, exchange funds, and then the seller turns over the title to the home.
In a lease option or a lease to own agreement, the buyer is agreeing to rent the home for a certain amount of time and then can exercise their option to purchase the home before the end of the lease.
This type of agreement used to be rare, but as more homeowners are finding it difficult to sell their homes, they are more open to entering a rent or lease to own arrangement. Even people who can’t qualify for a home loan are finding it possible to buy a home using this type of agreement.
While a lease to own arrangement may be possible, there are considerations for both parties. The buyer gains extra time to build a good credit record and put away money for a down payment. Most of the time, the selling price and the terms are locked in which may result in the buyer getting a great price on the home in a few years when the lease expires.
One thing to remember is that not all the money paid in rent will be applied to the purchase price, closing costs or the down payment. This is something that must be clearly defined before entering the agreement. Most traditional lenders will only allow these monies to be partially credited toward these expenses.
The buyer and seller decide how much the buyer will pay each month and how much of that amount will be set aside as the buyer’s home buying credit. At the end of the lease, if the buyer agrees to purchase the home, the amount set aside as the home buying credit is returned to the buyer who then uses it for a down payment, earnest money, or closing costs. If the buyer decides not to purchase the home, the home buying credit monies are typically not returned.
For a seller, this type of agreement can be a way to sell their home in a challenging market and have a renter who will care for the home. There is certainly a risk for the seller such as the buyer backing out of the agreement or the house gaining value, but entering into a lease to own agreement can work well for both parties.
Entering a rent to own agreement can be beneficial for both the buyer and the seller. Both parties should carefully consider all the pros and cons and then decide if this is a good option for them. Rental City and their professional staff can help.