I've done a lease-option (one of the technical terms that covers rent-to-own) with no money down. Usually, there's a non-refundable deposit, often equal to about 1%-4% of the purchase price of the property.
No, it's not just like renting. First, there's the NON-refundable option fee. Second, yes, you do rent. And that's similar to a regular rental. Usually (but not always) you pay slightly more, but some of what you're paying is credited toward the purchase price IF you buy.
Understand: There are two parts to a lease-option. The lease and the option. The lease might require you to put down a security deposit and the first month's rent. But the option usually requires a non-refundable option fee.
There's lots of bad advice below. Briefly:
Those situations are few and far between.
They're incredibly easy to find.
Way better to get a loan and be done with it.
This one's true IF you can qualify for a loan. If you can buy, you're usually better off buying. But most people interested in lease-options aren't in a position to buy today. A lease-option lets you lock in the price today and buy at some point (often 1-3 years) in the future.
To answer your question first, entering into a 'Rent to Own' agreement is essentially signing a contract to purchase.
True if you're talking about a "lease-purchase." That's where you're leasing now and agree to purchase in the future. But much of what's out there are "lease-options" where you lease now and have the option, but not the obligation, to purchase in the future.
The major reason being that you essentially agree to a purchase price and terms one year in advance to actually purchasing. In that time prices can completely change and you may even learn that you don't actually like the home.
First, a lease-option (or purchase) really should be for more than a year. And while it's true that prices can completely change, that's great for you. If prices go up, you've locked in a lower-than-market price. And if prices go down, you haven't bought, only to see your equity (the value of the property) decline. And if you don't like the home? That's fine. You move. You lose your option fee, but that's way less expensive than buying a home you don't like and then trying to sell after a year.
If prices go down, you end up overpaying for a home...not good.
You won't overpay for the home because you won't get financing. The house won't appraise for the higher value. At worst, you'll lose your option fee. But anyone who knows anything about lease-options will advise you on how to protect yourself if prices decline. There are three or four easy ways to do that. It just has to be written into the option. Example: If prices decline, you get your option fee back. Or you have the right to buy at the lower appraised price. Or the option can be extended (at no cost to you) for another 1-2 years. There are lots of ways to handle that situation.
Keep in mind that many homes are available for rent because they are not selling or the owner doesn't want to take a big loss on his investment and he doesn't want to sell for what it's really worth.
That's right. That's why lease-options are so plentiful. A 3 year option, for instance, gives you enough time to get your finances in order. And it gives the market enough time to, perhaps, climb to a point where the owner doesn't have to take a loss when he sells.
Hope that helps.
Yes, I would agree that someone should take the "non-local factor" into account when considering advice from someone who's in a different market. However, that doesn't mean their advice isn't valuable at all and therefore they should just shut up and stick to their own market! What kind of closeminded professionalism is that???
The exact same could be said to those doling out advice when rent-to-own is obviously not their specialty or area of expertise! Furthermore, the whole "ask any agent" advice...well, if the majority of rent-to-own sellers don't use agents (maybe because of the attitude that's been displayed on this thread by some), then are they the best ones the ask??? How ironic that a local rent-to-own resource was easily discovered on this thread after it had been said they were few and far between!
Today, I don't care where you are, we're all in a market like never before. Yesterday's rules & ways of doing things most likely won't cut it for many folks. Everyone (tenants, buyers, sellers, agents) have had to adapt to survive let alone thrive. Creative and absolutely legal solutions abound (lease options included). Closing yourself off to constructive input, even if it isn't in alignment with your own personal experience, only limits the possibilities (and your own growth). Who knows, someone's advice may not be exactly right for you or your situation, but it may trigger the thought/idea for the real solution.
Crystal, I don't know your market, but I'd be willing to bet that if you really wanted to find a single family rent-to-own you could. And you most certainly could get involved with the terms of the contract to ensure they are right for YOU. You're already off to a very good start! Wishing you all the best!
Don, stick to answering questions about the Virginia market. What are you doing answering questions in the Chicago market? Does your broker know you are doing this? You are out of your element.
It's probably not hard to find a single family home available for rent-to-own (RTO), but you do want to find a company that is doing it correctly and fairly to both the seller, and you, the tenant-buyer. Just like with any service, there are really good companies and those that are not. It's important the transaction be setup properly. If it is done correctly, then it can be a better way to go than renting or buying.
First, you do want to know how your credit looks. How long is it before you can obtain a purchase loan and what if anything needs to be done with your credit before you do qualify for a loan. If you are lendable in 6 to 9 months or less, then you probably just want to wait until you can buy outright. On the other hand, if you need 12 to 24 months, then renting to own may be a great option for you.
Watch out for companies that claim huge rent credits, as logically speaking, how can they provide 25% to 50% rent credits, (unless the seller owns the home free & clear or has a large amount of equity), or unless the home is overpriced and/or the rent is overpriced.
Most sellers are willing to allow somewhere around 10% rent credits, and that is logical if they are only asking current market price for the home and market rent. Find out the current value of a home before you sign a RTO contract and compare that to the seller's asking price (option price). Also, ask if the seller is current on their mortgage payments. The only way to make this transaction work without headache, is for the seller to ask a fair market price (supported by MLS comps), be current on their payments and not upside down on their mortgage, and to charge a fair market rent price.
Here are some of the key positive factors:
1. You get to live in the house that you plan on purchasing now;
2. Most RTO contracts allow you to do improvements to the property (ask if you get a further reduction in the purchase price if you were to do any improvements);
3. If the market value of the home goes up during your rental phase, the appreciation (i.e., increase in equity) should be yours;
4. If the market value decreases during your rental phase, then does the seller have enough equity in the home to lower the purchase price to the appraised value and are they contractually willing to do that; or, if they don't have the equity in the home to lower the purchase price to the appraised value, are they willing to extend your terms and conditions with no rent and/or price increase.
Just think, if you purchased the home, and the market value went down, then you are stuck with an upside down mortgage. At least with RTO, you don't have to purchase, and the owner is stuck with the depreciated asset...not you! Also, if you purchased the home and did not like it after a year, you are stuck with it...whereas with RTO, you can walk away.
Yes, there is typically a non-refundable down payment due upfront plus first month's rent, and if you do not purchase, then you will lose the down payment. Again, if you had purchased, there would be much more severe consequences if the value went down and/or you wanted to move very soon.
Again, remember it's important to have your credit reviewed ahead of time before you do anything and to determine the market value of the home before you sign anything. With a good RTO agreement, the seller should be asking market price, and not charging a premium on the rent. For our contracts, we charge less for RTO than for straight rent, as you did put a down payment down upfront that should count 100% towards your purchase price.
We have lots of frequently asked questions on our website. Feel free to read them before you get into any RTO arrangement.
The best of luck to you!
I have a great rental program that is just rolling out now.
It's great if you are looking for a rent to own, or just to rent.
If you are looking for a rent to own it allows you to have ultimate flexibility in terms, while at the same time it opens you up to both sides of the market.
You can look for homes that are on the market to rent as well as homes that are up for sale If you are looking simply to just rent, it allows you to look at homes that are also for sale.
This opens you up to a whole new marketplace, where the standards may be a bit higher then looking at homes that are simply just for rent.
make sure you have professionals on your side, working on your behalf to protect you.
I am wondering why you would not just rent a single fam. home for the time being?
Edith YourRealtor4Life and Chicago and Northern Illinois/North Shore Expert
Working always in the very BEST interest of her clients, Buyers, Sellers and Investors alike....
If you are interested in learning more please contact me.
Baird & Warner - Evanston
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property closes. You also might find after the amount of time you found something you liked even better or circumstances has changed in your life. Rent now and prepare your self financially by being advised by a mortgage broker on how to proceed in purchasing a home. Debbie Bergthold-Smith-Classic Real Estate
Koenig & Strey Real Living
To answer your question first, entering into a 'Rent to Own' agreement is essentially signing a contract to purchase. Although every instance is different, a lot of times you are charged above market rate with a predetermined amount being held in order to build up for a downpayment. After a predetermined amount of time (most likely a year) you end up purchasing the home for a price that you and the Seller agreed to at the beginning of the 'Rent to Own' agreement.
With that being said, I will never recommend to a client that they do 'Rent to Own.' The major reason being that you essentially agree to a purchase price and terms one year in advance to actually purchasing. In that time prices can completely change and you may even learn that you don't actually like the home. If prices go down, you end up overpaying for a home...not good.
I would say enjoy renting for the moment and when you're ready to buy, go get pre-approved and search for a home then. You will still find good options and good deal.
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