What Is the Rent-to-Own/Lease-to-Own Concept?
Many people desire to own a home. Buying a home can be very difficult for some people. For people who do not qualify for a conventional home loan, there is the option of exploring lease to own home deals. Lease-to-own home deals are a great option for buyers who want to own their own property but because of credit issues or lack of a down payment they cannot go the conventional route.
Many people do not have enough money saved to pay the full price of the property when it is purchased. Those people can still own property by taking out a conventional loan with a mortgage lender. The ability to get one of those loans is based on employment history, income, credit rating, the amount of assets and the amount of debts a person has acquired. If receiving a mortgage is not an option, that person can contact companies or current homeowners who are interested in the leasing the home with the intention of selling it. Otherwise known as a “lease to own.”
When you decide to lease-to-own a home, usually a portion of the lease you are paying each month goes towards your down payment or the purchase price. The lease you sign with the seller will state the amount of the monthly lease that will be credited back to you at the closing. The lease contract will also state the purchase price of the home. The homeowner does intend on selling the home to you at the end of the lease, or sooner, and the length of the lease will also be included in the contract.
Unlike a traditional Landlord-Renter relationship, in this situation, you will most likely be responsible for covering any repairs to the home. However anything over a certain dollar amount is almost always covered by homeowners insurance. Since there is the intent to buy the home, and build up equity during the lease period, the Tenant/Buyer would handle any repairs and cover the costs.
Prior to signing the lease-to-own contract, a down payment is usually required. The rule of thumb for the minimum amount is anywhere from 3% – 10% of the final purchase price. The homeowner can decide if the down payment should be paid in full up-front or if a portion of the monthly lease payment will go towards the down payment until it is paid in full. Also, the down payment insures the Tenant/Buyer’s option to purchase the home after a set period of time. The Tenant/Buyer should clarify all of the terms regarding any other miscellaneous fees or payments that will be owed up-front and understand which payments are non-refundable.
Leasing to own is a great option to explore if you want to begin the home-ownership process prior to actually buying the house. It can give you time to improve your credit score. If you do not have a stable employment history, it will give you more time to remain with a certain employer and to have a more stable income base by the time the mortgage lenders consider your application again.
Signing a lease-to-own a home is not a good option if you are not ready to be a homeowner. If you are not sure that you will want the home by the end of the lease term, you should continue looking for other houses or sign a traditional rental agreement.
Lease-to-own home deals are being asked for by more people, and is a great way to get into a home for people who have poor credit.
How Do Lease Options Work?
Lease option home deals work on the basic principle that the buyer and seller agree to a qualified Tenant/Buyer leasing the property for a specified period of time and then having the option of buying it for a predetermined price. This gives the buyer the breathing space they may need to adequately prepare themselves for the purchase and adds value to the deal for the buyer.
Buyers not only have the breathing space to get their ducks in a row – but these deals also allow for several ways of improving the odds when it comes to applying for a mortgage. One of these ways involves the seller giving the buyer “rent credits” for each month that the rent is paid on time, customarily this amount is 10% of the monthly lease amount. At the end of the lease the buyer is given credit, either a check for the amount or a discount off the purchase price.
Another way of lessening the blow of down payments come purchase time is to build “sweat equity” into the home. This is done by making improvements to the home while you are still leasing. This adds to the home value and because the purchase price does not change and you will be able to get a more favorable mortgage as the extra equity can be added to your down payment.
Short lease-option deals are also great when you are not sure about a home deal. It can give you time to see whether the home is indeed for you and your family. If your personal or work situation is volatile and you are not sure if you will be in the area for long these options can also make for attractive alternatives.
One should also avoid leaving the application for a mortgage too late. The minimum time one should allow for, is 45 days prior to the lease expiration date. Get these formalities sorted out early so that you are ready to close on the home if you have decided to buy.
This is only a brief description of the process. The person that you buy from will have more than enough information on the process. And, if you have other questions you can always contact us. Overall, lease options are a great way for a buyer to get into their dream home without having good credit and a large down payment.
Frequently Asked Questions:
What if my credit score is REALLY bad?
Listen…it doesn’t matter what anybody has told you in the past, if you have horrible credit, judgments, liens, tax problems, divorced, or even filed bankruptcy yesterday we can help!
We have an amazing home-buying program that will get you in the door of your new home within the next 3-5 days no matter what your current or past situation is!
We work with anyone who truly wants to own their home. We don’t care if you have bad or awful credit! Where a conventional lender will deny you on the spot, a lease-to-own a home is easier (and definitely MUCH more profitable) then renting a home or apartment!
Who’s responsible for damages and maintenance?
Well, since this is your home, you’re responsible for it. But – if ANYTHING major happens
(damages over $500 to $1000) home owners insurance will come into play. But minor things are up to you.
Where do my monthly payments go?
Every month you pay the rent on time, in some cases (depending on owner-finance laws, and seller discretion), a portion of your rent payment may be credited towards the home’s purchase price. In such cases, you will build equity instead of flushing money away with an apartment, home, etc. that you will never own!
Each of our homes has a different discount percentage which we will discuss with you. What you’re paying per month may actually go towards something – your home and your future!
Where does my down payment go?
When you get into your home, you must pay an ‘Option Consideration Fee’, earnest money (also known loosely as a “down payment” or “Rent to Own Fee”). ALL of this money is given back
to you when you buy the home! This becomes instant equity, will reduce the purchase price of your new home, and lower your monthly payments!
What if I don’t have enough for a down payment?
When you buy a home through conventional means, you must pay closing costs, pre-paid and high down payment costs. With our agreement, you only pay the 1st month’s rent and the required down payment.
This saves you between 20%-85%…..and that is thousands upon thousands of $$$
What is the final purchase price?
The home’s purchase price will be locked in from the start, so NO surprises and NO hidden costs. You see and know everything before you sign anything.
You Keep the Value You Add to the Home!
If you want to make improvements to your future home go ahead. This will only increase its value and it’s yours to keep when you purchase the home. So you can landscape, paint, upgrade, even add on to the house. It not only will increase the value of your home, but will also make it easier to finance, as the appraisal value will increase. It will all be yours and will do nothing but INCREASE what your future home is worth!!
Who pays the taxes?
Since you do not own the home yet, you won’t have to pay property taxes.
How Soon Can I Move In?
Move-in time is really FAST, typically around 3-5 days!
Now with a conventional loan/mortgage it could take anywhere from 1 to 3 months from the time the offer was made.
Before you actually buy the home, you have time and our help to improve your credit (which we will help you with for FREE), be at your job longer, save more money, and get the best financing available.
You may have other questions, and we can help…contact us today so that you can begin building your future!
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