1. What is Rent To Own?
The “Rent to Own” or “Lease to Own” option is a legal and proven home buying solution in which you as the tenant/buyer have the right (but not the obligation!) through which he can buy the property within a specified time frame at an agreed price. Typical prospective homeowners take advantage of using part of their monthly rent money to contribute towards the purchase of a property while they get their personal credit history improved so that they qualify for a more traditional mortgage.
2. Leasing a house – is that like leasing a car?
The similarities are: when leasing a vehicle, you make a small down payment, then pay a pre-determined monthly payment for a fixed number of years. At the end of the lease, you usually have several options:
- Buy the car outright at an agreed upon residual price.
- Return the car to the dealer.
- Begin a new leasing arrangement for the same car or its replacement.
3. To qualify, do I need to be employed?
Yes. You will need to show recurring employment or self-employment income to qualify.
4. What if you can’t easily verify my income?
How can we get it done? There are several ways to verify income – in fact, some loans available today don’t require income verification at all.
5. Will I need a down payment?
Yes. Most Rent To Own companies do not get involved in rental programs. Some sort of down payment is necessary to qualify, sometimes as little as $5,000. That can be all it takes to start living out your dream of home ownership.
Lease To Own / Rent To Own Companies generally are prepared to work with tax refunds, equity from other homes, bonuses, retirement funds, etc. as the basis for your down payment.
6. Is my debt ratio too high? How much home can I afford?
Your house payment, added to all your other monthly payments, should not exceed forty percent of your family’s gross income – that’s total income before taxes. You should add only monthly expenses with fixed payments (cars, furniture, credit cards, mortgages, student loans, etc.) to reach the forty percent. The final number should not include things like insurance, clothing, food, utilities, entertainment and so forth.
7. Is my house purchase price fixed, regardless of changing market conditions?
It will depend on the Lease To Own a company’s policies. A good company will establish and lock in the purchase price from the start – a fair price based on the projected value of your home at the end of your lease.
8. At the end of the lease, what are my options?
At the end of your initial lease, you and your Rent to Own company sit down to review the options. Sometimes you may need more time to rebuild your credit, or maybe you want to increase the size of your down payment. In scenarios like these, you can always extend your lease for another year. One possible alternative is that your purchase price increases by only one half of one percent per month until you are ready to purchase, allowing you to continue to benefit from the equity appreciation in your property.
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 buy at a predetermined purchase price and qualify for traditional financing after that initial lease, your initial deposit with the leasing company will be applied towards your purchase. That money will be treated by conventional lending institutions as an acceptable form of down payment for home ownership.
9. Why is there a need to qualify for a mortgage at the end of the initial term?
To purchase your home outright, you must arrange financing at the end of the lease. Leasing companies will work with you throughout the process to get you ready for that next step in the process. Good Lease to Own companies will connect you with a mortgage specialist in order to help you get a mortgage plus provide guidance in repairing any credit issues you have.
10. Ok, I’m interested – what is my next step?
If after you’ve read this article you are interested in exploring the Lease To Own option for your next home (or if you still have more questions), go ahead and contact a Lease To Own company in your town or city.