Rent-to-Own (also called owner financing, lease purchase, right to purchase, or seller carry) is a type of transaction by which a buyer enters a contract where they agree to pay a monthly fee, in exchange for the right to live in and purchase a property at a later date. They move in now, but buy it later.
The exact exchange and terms are dependent on the type of arrangements that the parties (tenant/ potential buyer and landlord/ owner) agree to. We’ll explore examples of those agreements later in the guide.
Rent-to-own differs from a traditional leasing arrangement in that the tenant may have the right to purchase the property at any time during the agreement, or may in some cases also terminate the agreement by returning the property to the original owner (though they may have a limited time frame in which to do so, and the penalties can sometimes be high).
Getting into a rent-to-own home agreement may be a smart choice when a prospective buyer doesn’t have the credit or funds to buy a home outright, but is in a market where prices are rising quickly and they need to get in now before they are priced out of the real estate market.
The Tenant/ Buyer’s Perspective
The rent-to-own option gives you time to earn money for the down payment if you want to buy the property in the future. This timeframe is typically 1 to 3 years, depending on your negotiations with the seller.
As a tenant, choosing a rent-to-home may be a good option when:
- You have bad credit and don’t qualify for an affordable mortgage
- You had a recent life event (ie bankruptcy, divorce, recent job loss)
- You can’t currently afford to make the down payment on the home
- You’d like the opportunity to test the property before you buy it
- You want the added security of the purchase price of the home remaining the same throughout the contract, despite market fluctuations
So… how does it work?
While most home buyers need a mortgage in order to finance the purchase of a home, rent-to-own homes provide an alternative route. With rent-to-own, you don’t have to sweat the credit requirements for acquiring a mortgage, or save up a huge down payment, in order to buy. Instead, you can rent a home for a certain amount of time with the option to buy the home before the lease ends.
Rent-to-own is more complicated than renting, so you’ll want to do thorough research to determine whether this is the right route for you. Also, you’ll need to take certain precautions in order to protect your own interests. Consulting with a licensed Realtor with special training in these types of transactions is the best place to start.
Where do I find rent-to-own homes?
The great news! There are programs that offer a new twist on the rent-to-own model. It offers Americans
a safe alternative form of financing so that they can get into their dream home today, even if they don’t qualify for a
mortgage or have money saved up for a down payment.
One of the programs is Divvy. Check out the link below for more information on how this program works:
If you’d like to know about other programs, feel free to contact me at 480.203.4364
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