Rent to own, known as a lease option, is a technique investors use to make money. You pay higher up front, about 5% of the purchase price, plus extra rent each month. The regular rent goes to the owner, but the additional payments are used to buy down the price of the home. If you end up not being able to qualify for a loan from a lender at the end of your option period, you don't get any of that money back. The investor will try to get you to take the shortest option period possible, maybe one year, banking on the fact that you won't be able to exercise your option by the end of it. Most renters end up not being able to qualify for a loan, which is why investors do it.
For example, if you buy a $275,000 home and a $7,500 up-front fee, then pay a rent premium of $500 a month on top of their $1,600 market rent, you'll have $13,500 saved after one year and $25,500 after three. But, if you just did that on your own, you'd have the same amount with interest.
That would be great since prices are rising, but investors are fully aware that prices are rising, so your option period will be short.
One disadvantage is if you can't qualify by the end of your option period, usually 12-24 months, you paid all of that for nothing. You may be able to get a contingency worked into a contract for the return of the extra rent and up-front payment in a buyer's market, but we're in a seller's market. Another is the owner who negotiates a lease option, but doesn't tell you he's in foreclosure, and the home is repossessed without your knowledge, a scenario far more likely in this market.
Have you spoken to any lenders yet to see what you need to qualify? When you have this information in hand, you'll know if you can swing a house with the rent applied to the loan. But, it'll only make sense if you can get a long option period, AND you know you'll be able to qualify at the end of it. But, if you can save 3% or 3.5% for a down payment by the end of the option period and still get a similar house, you won't need to do a lease option, and you'll have many more houses to choose from.
So, do two things:
1. Talk to a lender or two (I can send you some to talk to)
2. Do a search on lease options, and you'll find a lot of information on this investment technique, because that's what it is.
Good question, and good luck! Call or email anytime with questions.
Cory La Scala, REALTOR
Lic # 01443391
After reading all the comments all are very good, the one thing you have to keep in Mind is Homeownership is a great thing to have just you have to make it happen the right way.
There is no shortcuts in buying a home things have to be done correctly.
1. Get a Pre-qual with a reputable Lender.
2. Get a good Realtor that will listen to your needs and that will make the transaction for you be seamless.
3. Look for your home and get your keys after the close of escrow.
The feeling of doing so is so wonderful ! no more paying rent (your Landlord's mortgage). This will be something that is yours.
Rent to Own as they have mention is not a good option to do, it is just a shortcut that eventually will wind up with you losing your money and staying without a home at the end.
Good luck and if you have any questions please feel free to visit us at our site.
Just as Cory, Debra and Sheryl have noted, there are a few issues with the Lease/option plan.
There is an exception, however.
Those exceptions are not advertised lease/options.
These homes become available when a lease option proves to be a solution to a home owners situation. To locate these owners you must work with a multi-dimensional real estate professional.
This means not only making a commitment but demonstrating that commitment. Then the real estate professional can invest their time, dollars, resources and personal integiry to match your housing need to a solution a homeonwer seeks. Rarely are these predatory situaions.
HOWEVER, failure to preform at the option pediod will leave you with nothing. Your agent will be very transparent regarding this aspect. No one wins if you fail to perform in this situaion. The agent loses credibility. The owner still must deal with selling the home. You are looking for a place to live with fewer resources avaialble. That is why THESE lease options exist under the radar and out of reach of those whose intent is to circumvent the protections in place for their benefit.
Many have found just as Sheryl suggests, when they have ALL the data they realize they can buy instead of paying for someone else's house.
Best of success to you,
Annette Lawrence, Broker/Assocaite
Remax Realtec Group
Palm Harbor, FL
Do you really want to risk losing your upfront/deposit money?
(contrary to what many consumers think - all your rent will not go towards the purchase - only the amount OVER and above the fair market rent will apply)
Do you want to lock into a sale price now?
Do you want to have a limited number of homes from which to choose - most sellers who can, sell now, not later.
If you are not financially sound now..........you could really be at risk later, when the lease period is up, and you will have to be approved for a loan or forfeit your upfront money.
Be sure you know what you're asking for..... and seek legal advice before signing anything!