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What is "rent to own" and how does it work?
"Rent to own" is also known as "lease-option". This is a lease with the option, or right, to purchase a property at a fixed price at any time within the rental period. The price of the house may not change no matter how much the value of the property may change. It consists of three parts (usually three contracts): a lease, an option, and a purchase agreement.
You pay an initial non-refundable option consideration to obtain this right. It is usually between 3.5% to 5% of the purchase price. This money is applied toward the purchase price when you decide to exercise your option to purchase the property. For example: A house you want to purchase has a price of $200,000. If the option consideration price is $10,000, the amount you will need to borrow from the bank will be $190,000.
ADVANTAGES:
1) Qualifications for a lease-option are much less stringent than those that a bank requires. It is much easier to buy a house. Even those who have gone into bankruptcy may be able to purchase a house on a lease-option. There is no bank qualifying at the time you sign a lease-option agreement.
2) The rental period gives you time to save up for a larger down payment and helps give you time to bring up your credit score and fix any credit problems.
3) The rental period gives you a payment history which we will supply for you to take to the bank.
4) You are NOT REQUIRED TO PURCHASE the house. If you decide not to purchase, you simply walk away with no consequences to your credit. However, if you do decide to purchase then we must sell to you.
5) All rent deposit is applied towards the purchase price. NO DEDUCTIONS for any changes in the condition of the house as you would have with a normal rental.
6) You have fewer restrictions on what you do with the property. This is because it is a purchase as much as a rental. You may, with approval, do major renovations to the home. THIS WILL NOT CHANGE THE PURCHASE PRICE.
DISADVANTAGES:
If you decide not to purchase the property, you will forfeit your non-refundable option consideration.
ADDITIONAL THINGS THAT WE DO:
1) For every month that the rental payment is made on time, we will credit $100 back to you towards the purchase price of the property. Using the example above, if you have 10 months of on-time payments then $1,000 additional money would be applied toward the purchase price. Then you would only need to borrow $189,000.
2) We include the rental deposit in the non-refundable option consideration down payment.
Since we make the majority of our profits on the sale of the property, we will do whatever we can to help you purchase your house.
What is the difference between a lease-option and a land contract?
Although they work much the same way, a land contract is a completely different legal instrument. With a land contract, the buyer is considered to be the legal owner even if the deed is held in escrow. With a lease option, the seller is considered to be the legal owner.
In case you are wondering, that's Tasha holding Kitty in the picture at the top of each page. (She hates the picture.) It was taken by her 8 year old younger sister Stephanie. The photo is unretouched.
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