One of the hardest things you will ever do is purchase a home. It often seems impossible. There are many factors to consider when going through the process like your credit score, financial history, employment, and the amount of money you may have saved for a down payment. You may not qualify for traditional ownership right now, but there is a likely alternative that you do qualify for without throwing out thousands of dollars a year away on rent.
Does Part of My Rent to Own Payment Go Toward My Downpayment for a Home?
A rent-to-own home with an option to buy contract is a short-term lease that allows you to live in the property for a set period of time in exchange for monthly rental payments. After the initial rental time period is over, depending on the original terms of the lease agreement, you will have an opportunity to buy the home.
The first thing we recommend that people do is see if they qualify for a rent to own home– it’s easy, and they are often surprised. Click here to see if you qualify, it’s the best first move.
Another important part of the process is to know your credit score, and to actively begin repairing it if you know it needs some work. What is your credit score? Click here for us to help you find out quickly and easily. Does your credit score need a little love? Click here and start the repair process sooner rather than later.
Typically, these rent-to-own options typically give you two to three years to buy the home. During this time, a rent-to-own homeowner will continue paying the mortgage with the tenant’s monthly rent payments while also putting an agreed-upon percentage or portion of the rent into an escrow account. This portion of the rent may be applied to the down payment during the period prior to buying the property.
For example: Let’s say that we have a rent-to-own agreement for $1,000 a month and a 20% down payment. That means that every month, $200 will be deducted from your rent payment and put toward buying your home. Once enough money has been saved up (20% of $1,000), the landlord will apply that payment toward the purchase price of the house.
It is important to note that the rent is typically going to be slightly higher than the average rate for the area. This is for the landlord to make up for the rent credit being put aside for the later purchase of the property. Look at the terms and fine print to make sure that you understand what you are getting out of the agreement.
Just as with any legal matter, be careful and do your research before you sign any contracts. Look into the seller’s history and the rates in the area. Have the house appraised and inspected to avoid any repair costs down the line if you are responsible for them. While not required, you may want to consider consulting a real estate attorney to assist in drawing up the agreement.
There are many scammers out there that may steal all of your rental payments, have the house be foreclosed on, or leave you liable for a lawsuit if you are unable to qualify for mortgage financing at the end of the lease agreement.
There is also a risk if your financial situation changes for the worse. If you miss one rental payment or break any of the terms stated in the rent-to-own contract, the option to purchase will likely be null and void and you will be out of the option fee and all of the rent that went toward the down payment of the house.
Needless to say, the rent-to-own approach is simple: a home seller gives the buyer the option to lease the home for a specified period of time with the option of purchasing the property at a later date, while also contractually able to put a portion of the rent aside for the down payment. It gives you flexibility and time to your credit and pay off debt to later qualify for mortgage financing. Just be sure to do your due diligence and research your options in the area and the history of the seller or the company. You don’t want to potentially lose out on all of your money!
Remember, finding out if you qualify for a rent to own home is a simple process to begin: click here and let us help today.