1. What is Rent To Own?
“Rent to Own” (also called “Lease to Purchase”) is a popular home buying strategy in which the tenant/buyer has the right to buy the house within a specified time at an agreed-to price. Typically, the prospective home owner takes advantage of using a percentage of their monthly rent money to be applied towards the purchase of a home while they improve their personal credit history so that they can qualify for a more traditional mortgage in the future.
2. Leasing a house – is that like leasing a car?
The similarities are: when leasing a vehicle, you make a small down payment, then make monthly payments for a fixed number of years. At the end of a car lease, you typically have several choices:
* Buy the car outright at an agreed upon residual price.
* Return the car to the dealer and walk away.
* Enter into a new leasing arrangement for the same car or a different vehicle.
3. To qualify, do I need to be employed?
Yes. You need to show self-employment income or recurring employment to qualify.
4. What if you can’t easily verify my income?
There are several ways to verify income – in fact, there are some loan programs available that don’t require income verification.
5. Will I need a down payment?
Yes. Most Rent To Own specialists do not get involved in rental programs. You will need some sort of down payment to qualify, possibly as little as $5,000. That’s all it takes to start living the dream of home ownership.
Most Lease To Own or Rent To Own Companies can work with tax refunds, equity from other homes, bonuses, retirement funds, RRSPs, etc. as the source for your down payment.
6. Is my debt ratio too high? How much home can I afford?
A good “rule of thumb” is that your house payment, plus all your other monthly payments, should not exceed forty percent of your family’s gross income (income before taxes). Add only monthly expenses with fixed payments such as cars, furniture, credit cards, mortgages, student loans, etc. to arrive at that forty percent. The final figure should not include items like insurance, clothing, food, utilities, entertainment and so forth.
7. Will changing market conditions impact my property’s purchase price?
That will depend on the Rent To Own company’s policies. A good company will fix the purchase price from the start – a fair price calculated on the projected value of your house at the end of the lease.
8. What are my options at the end of the lease?
At the end of your initial lease, you and your RTO company sit down to review your options. If you need more time to rebuild your credit, or if you want to increase the size of your down payment, you can always extend your lease for an additional year. One possible scenario is your purchase price increases by only one half of one percent per month until you are ready to exercise your option to purchase. This allows you to continue to benefit from the equity appreciation in your home.
Another option is, with your initial lease period over, if your circumstances have changed or you are interested in another property, you simply walk away with no other obligations.
However, if you do want to buy at the agreed-to price and are ready to secure conventional financing after that initial lease period, your initial deposit with the Rent to Own company will be applied towards your purchase. That deposit will be viewed by conventional lending institutions as an acceptable form of down payment for you to own the home.
9. Why do I need to qualify for a mortgage at the end of the term?
To purchase your home outright, you must secure financing at the end of the lease term. Leasing companies will work with you throughout the process to prepare you for that task. A good Lease to Own company will connect you with a mortgage specialist that will help you get a mortgage and provide guidance in fixing any credit problems you have.
10. Ok, I’m interested – what is my next step?
If you’ve read this article and are now interested in starting the Lease To Own process with your next house, or you have further questions, feel free to contact a local Rent To Own company in your market.
There’s more to learn aboutRent To Own, Visit Bryan Samac’s site on how to choose the best Rent To Own Program for your needs.