Are you considering renting your next house? There are alternatives out there which will help prevent you from throwing your money away on rent.
If you’re tired of renting, and you want to own a home in but your credit, lack of down payment, or income hold you back from qualifying for a normal bank loan… a “rent to own”, often called “lease option” or “lease purchase” may be a great fit for you. We’ll explain below along with why it’s important to choose the right company to help you through the process.
A Rent-to-Own house purchase is a rent combined with an option to purchase the property within a specified period at an agreed-upon price. The most common payment scheme that rent-to-own follow is the 10+10+80. Which means the buyer should initially make a 10% downpayment for the house before it can move into the property. For the next 24 months, another 10% should be paid. After that, for the remaining 80%, the buyer will need to get a bank financing or pay in cash the rest.
Another option is the reservation scheme. For this one, the buyers who have paid the reservation fee and passed the capacity-to-pay requirements can give 2 months worth of rent as well as issue post-dated checks for the monthly rent and move in. Financing to buy the house can start once the buyer achieves the 20% equity on the property.
Lastly, the rent-with-an-option-to-buy scheme upon the agreement of both parties for a specific monthly rate, purchase date, sales price, and other matters like interest rates. The contact will be drafted based on these.
With any kind of financial contract, buyers especially need to be careful. But Rent to Own plans has a solid economic rationale, which means that they can be structured so that both parties benefit.