In the event you desire to own your own home but cannot secure standard financing today, renting a house with an option to purchase may be your best option. A lease purchase can make your rent money work for you instead of making your landlord rich. Generally rent to own homes come with rent credits that decrease the final purchase price!
Here's this it works:
A home is offered via a regular lease with one crucial add-on. Included is an option to buy that property at a stipulated price over a stipulated time period (generally a couple of years). To be able to acquire that option, the renter/buyer is required to pay a single time, NON REFUNDABLE, charge called the option consideration. The exact sum is flexible, nonetheless it is generally ranges from 2.5% to 7% of the price. A reasonable contract will credit the purchaser 100% of that option consideration upon conclusion of the sale. Additionally a negotiated portion of all rent transactions is generally applied toward the price of the property. A few standard terms and conditions one might expect to find inside a contract follows:
* To be able to be given a rent credit of 50%, time is important. You have to pay your rent on or BEFORE the deadline of your lease (usually the 1st of the month). This implies it must be received by the lessor (landlord) on or before the deadline. Any payment received past the deadline will lead to a 0% rent credit for that month, a penalty fee may apply and you will probably not be creating any sort of resources.
* Repairs and maintenance is the obligation of the Tenant Buyer. You are at this instant renting to own and homeownership requires repairs and maintenance. This can include things such as damaged windows from rocks or even baseballs, blocked drains, peeling paint, broken appliances, burnt out light bulbs, yard work, etc. In cases where any major repairs are required to ensure habitability, the owner continues to be responsible.
* You need to have Option Consideration. Option Consideration is often 2.5% to 7% of the price of the property. This is a non-refundable costs, out of which 100% is credited toward the price, that binds the lease purchase contract.
Here's a sample transaction:
You come across a nice 3 bedroom, 1 bath single family home located in a great neighborhood with excellent schools and also a solid community members. It has been freshly painted, cleaned up, and is ready to occupy. The purchase price is going to be $215,000. Monthly rent payments shall be $1,500 and you will get a 50% rent credit ($750 per month). You need approximately 2.5% and 7% in advance Option Consideration. Suppose 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 first payment of $7,500.
Take note: Option consideration is definitely not a security deposit. This is a non refundable payment toward the price and is 100% credited toward reducing the cost of the home.
Now assuming you paid all your monthly rent payments on or prior to the deadline and you decide to purchase the rent to own property at the end of the 12 month lease purchase contract. You will have $15,000 in equity prior to you even own the property! Here's the math:
Lease Purchase Price - $215,000
Less: Option Consideration paid at lease signing - $6,000
Less: 50% rent credit of $750/m x 12 months - $9,000
Net Purchase Price after credits - $200,000
You began with $6,000 and by paying your rent punctually; your equity standing grew 150% (another $9,000) for a full amount of of $15,000 with 12 months. Not a terrible arrangement! Many people find it extremely hard just to save $9,000 in a year with all the costs of living continuously on the rise.
What's the catch?
Now you could be thinking, "OK, what's the catch? This appears to be too good to be true."
Answer, there is absolutely no catch.
There are lots of likely factors a landlord/seller may want to get into a rent to own agreement. Some factors may be:
- Needs to maintain ownership for at least a year for tax requirements.
- Cannot receive a good price because of local circumstances.
- Fed up with undertaking minor upkeep.
On top of that, when one sells a property by using a realty service, a commission of 5%-7% is typically paid. In the example stated above, this could be more expensive compared to rent credit. Since realtors are often not involved with this sort of transaction, there is absolutely no commission and the landlord is able to pass off the benefits to tenant/buyer by means of rent credits.
Also, once the Tenant becomes the Tenant Buyer (via rent to own), it comes with an instant sense of pride in ownership. Tenant Buyers give back to the community. They take care of their future property, make enhancements, and feel great knowing their rent money is earning a living for them (reducing the price) rather than just making their Landlord rich.
In addition there are many advantages for the renter:
- Build equity toward home ownership.
- No bank or finance company involvement.
- A less than stellar credit history may not be a problem.
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