How Rent To Own Works?
So, you have reach your boiling point and don’t want to rent anymore. Well the thing is, you don’t have the documents asked from you or your finances fail to meet the requirements to get a mortgage. If you would consider the rent to own option, this will not be much of a problem anymore. However, there are things that you must be mindful about before proceeding with this option.
So rent to own works like a typical rental property. You will rent a house but rather than just renting it, it has the option of buying it at the same time. You’ll have a lease that last for around 2 or 3 years and the seller is expecting you as well to put some form of an upfront down payment or an option fee. In most instances, this is going to be 1 to 7 percent of the property’s agreed purchase price. On top of the rent, you will need to pay as well the Rent Credit or Rent Premium. Such amount will go directly to the property’s purchase price.
So let us say for example that the average rate for a house with 2 baths and 3 bedrooms is around 1,500 dollars. In relation to the added amount that must be paid for the purchase price of the house, this is something that you and the owner has to talk to. In general, you may expect to pay roughly 20 to 50 percent above market rent but for sake of the argument in this article, let’s stick to 25 percent.
Assuming that you are about to pay 1500 dollars per month on the rent, there will be an additional 375 dollars for the purchase price. If for example that the lease is set to 3 years, then you are going to pay the rent credit amassing 13500 dollars and that’s how rent to own works.
On the other hand, you need to know at the same time that if you chose to go for rent to own, you have to commit yourself in finishing the lease term. This is because of the fact that if in the middle of the lease you come to a decision to not continue with the term or can’t pay for the rent monthly, the owner will forfeit everything you have paid including the option fee and the rent premium. The seller will keep it all and you have to move out and start things all over again.
As a matter of fact, there have been several cases to which this happens before. So make sure that you have a well thought plan on how you’d go with rent to own option.