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home :: Rent to Buy Homes
Rent to Buy Homes: Begin to Secure Your Equity
Renting to own provides quality solutions to home buyers with credit
problems
By: Gary Carraghan
If
you desire to own your own home but are unable to secure
conventional financing today, working with agencies or individuals
who provide rent to buy homes may well be your most effective
and, in the long run, profitable option. A lease purchase can make
your rent money work for you in a way
that renting from a landlord never could.
Renting to own real estate operates on very much
the same concept as does renting to own appliances, furniture, or
other less valuable asset. A down payment is made and a monthly
payment agreed upon and taken away from the monthly balance until it
has been fully paid, and the property becomes entirely owned by the
payor.
Rent to own is nothing more than a leasing option. After
a certain period of time, the payor of a lease is given the right to
buy the home without it having gone for sale on the open market and
at a reduced price corresponding with whatever balance remains on
the home. In a typical lease situation, the lessee has no rights to
the property upon the agreements expiration. During the rent to own
process, however, the down payment of a tenant is made as an option
to, at the end of the lease, purchase the property and inherent the
equity built up during the tenant’s stay in the property.
Beyond just another financing option, the rent to own
process is perfect for the prospective home buyer who might have
trouble qualifying for a loan. Many Lease-Purchase programs allow
the occupancy of a home for up to 12 months prior to purchase,
allowing the buyer to save for a down payment on the same property
if he or she is facing credit issues which might otherwise make
buying any home impossible. Normally these lenders require a 3% to
5% down payment of the purchase price.
“Can you really rent to own a home?” is a valid question
discussed at
www.super-mortgages.com/Rent-to-Own-Home . On the other hand,
any who take advantage of the rent to own process find it worthwhile
if for no other reason than the peace of mind achieved. Tenants have
full control of the home and can maintain it or improve because it
will be yours when they exercise their option to buy.
Consider the following example to illustrate the
process:
A nice 3 bedroom, 1 bath single family home
located in a near west suburb of Chicago in a great neighborhood
with good schools and a strong community is available for sale. It
has been freshly painted, cleaned, and is ready to move in. The
purchase price will be $215,000. Monthly rent payments will be
$1,500 and you as the buyer and tenant will receive a 50% rent
credit ($750 per month). You would need between 2.5% and 7% in up
front Option Consideration, or what serves as a down payment. Assume
your budget allows for $6,000 for Option Consideration. This equates
to approximately 2.8% ($6,000/215,000). You will also need $1,500
for the first months rent for a total initial payment of $7,500.
It’s important to know that option consideration
is not a security deposit. It is a non refundable payment toward the
purchase price and is 100% credited toward reducing the price of the
home.
Now suppose you paid all your monthly rent
payments on or before the due date and you choose to buy the rent to
own home at the end of the 12 month lease purchase contract. You
will have $15,000 in equity before you even own the home, an
advantage a buyer who purchased the home outright or with a mortgage
taken from a bank would not have at their disposal.
You started with $6,000 and by paying your rent
on time; your equity position grew 150% (another $9,000) for a total
of $15,000 with 12 months. Not a bad deal considering many find it
nearly impossible to save $9,000 in a year with all the costs of
living constantly on the rise.
Those who provide rent to own services to buyers
do so in an attempt to build a business by creating value that
doesn’t currently today. They can only accomplish this through
quality referrals from tenant buyers, sellers, and landlords. Giving
back rent credit helps a family to buy a home more quickly than they
could trying to save 10% or 20% to put down on a new home purchase,
allowing them a head start toward building equity.
Additionally, when a home is sold through a
realty service a commission of anywhere between 5% to 7% is
typically paid as a form of commission. In the example above, this
can cost more than the rent credit. Since realtors are completely
eliminated in this transaction, there is no commission and this
savings is allowed to be passed onto the leaser. This provides still
another advantage to renting to own as opposed to what are
considered to be the more mainstream ways to purchase a home.
Finally, when the tenant decides to purchase the
home after renting it for some time and becomes the tenant buyer by
taking advantage of the rent to own process, there is an immediate
sense of pride in ownership. Tenant buyers add value to the
community and take care of their future property to a far greater
extent than those who simply rent, making improvements, and
generally feel good knowing their rent money is working for them
(reducing the purchase price) rather than just making money for
their landlord.
Most everyone has dreamed of owning their own
home at one point or another. Many people are unable to qualify
right now to buy their home because of many factors. Some people
have a few bumps in their credit score, while others don’t have any
savings for a down payment. Whatever your situation, the rent to own
process can make one of the most difficult and important decisions
of your life an easy and even profitable one.
About the Author
Gary Carraghan is a
successful author and regular contributor to
www.super-mortgages.com who provides money-saving tips on
mortgages. His other articles include interesting topics such as
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