A popular question we are asked is ‘How does rent to own homes work?’ – here’s your answer. Rent to own home arrangements are popular with both buyers and sellers. This strategy allows sellers to sell their property that may have been sitting on the market for awhile, and buyers to purchase a home immediately without having to come up with a large down payment, closing costs and worry about credit scores. Rent to own home programs also work well for the buyer who wants to own a home now, but does not have enough down payment to qualify for a traditional mortgage. The buyer can rent the home and move in immediately. It is a great way for the buyer to experience what it is like to be a homeowner. It’s a great way to go beyond the traditional search for real estate to rent – instead, the tenant is happy to rent to own a home.
A large advantage to the buyer is that they will have more time to save a larger down payment to purchase the home in the future. The purchase price can be agreed upon at the time the buyer and the seller enter into a rent to own contract or at a later date. Frequently, a portion of the rent payment is applied towards the purchase price. Rents may be slightly higher than market rate so the seller benefits by receiving higher rental income. There is a contract date in which the buyer must purchase the home. If the buyer fails to purchase the home, the seller gets to keep all the rental income and any non-refundable option money that may be negotiated.
Where to find rent to own homes
The following are great resources to find rent to own homes:
- Local newspapers
- Craig’s List
- Flyer box at property
- Signage on property
- Bandit signs
- Mailers and post cards
- Social Networking Sites
- Local Realtor
- Word of mouth
How does rent to own homes work: the benefits
The seller avoids the unpleasant job of having to be a landlord because the buyer/tenant maintains the property, except the seller usually pays the property taxes and insurance. The seller does not have to list their property for sale and pay a real estate brokerage commission. They can pass those savings on to the buyer when negotiating the purchase price. Whether the home appreciates or declines in value, the buyer is obligated to pay the seller the purchase price agreed to in the rent to own contract. Rent to own buyers tend to keep the property in good condition because they have a vested interest in it as opposed to renters who may damage or neglect the property. The seller is able to use the rental money towards a mortgage payment if they do not own the home outright, which eases the financial burden for many sellers.
The buyer gets full use of the property without the pressure of having to provide a credit report and does not have to worry about qualifying for a mortgage or presenting financial information such as tax returns and bank statements until they are actually ready to obtain a home mortgage to purchase the home. The buyer gets extra time to clean up any credit issues and/or to save money for a down payment. The rent money becomes a long term investment in the home when buyers purchase rent to own homes. The buyer builds equity before they even close the transaction. Also, the buyer gets to see what it is like to own a home, prepare for home ownership and get a good idea of the property’s condition while giving in the home. There won’t be any surprises after the closing because the buyer already knows what to expect. It is still recommended that the buyer obtain a home inspection before closing the escrow on the home though.
Rent to own home arrangements are the perfect solution for both sellers and buyers because the seller gets to sell their home and receive rental income until they close, and the buyer gets to purchase their dream home and take advantage of affordable home prices. The move in time is quick for the buyer because there is no waiting for a mortgage to be approved which can take 30 to 60 days. We hope that we have cleared up the question ‘how does rent to own homes work’ – if there is anything else we may have missed or you wanted to add, please leave a comment. If you have have experience with a rent to own home arrangement, we’d love to hear about it.