The secrets you need to know about the rent-to-own deal

The secrets you need to know about the rent-to-own deal

The secrets you need to know about the rent-to-own deal

So you’re sick of hiring. You want to own your own home but don’t have a big down payment. You’ve undoubtedly heard of the ‘perfect solution’ – rent to own. But is it really as perfect as everyone says – hardly. There are some rent-to-own secrets that you should know. They are the most overlooked aspects of a rent-to-own deal. So let’s find out the truth about renting to own homes.

How Rent to Own works

Here’s how it works. You are renting a house with an option to buy. You will have a lease which will usually last between 2 and 3 years. The seller will also expect you to put up some sort of down payment or option fee. This is usually 1 to 7 percent of the agreed purchase price. On top of the rent you will pay what is called Rent Premium or Rent Credit. These additional amounts are included in the purchase price of the house.

Let’s see how renting in Salt Lake City, Utah would fare. As of January 2017, the median rent for a 3 bedroom, 2 bathroom home in Salt Lake City was $1,500. Now the additional amount you will pay for the purchase is negotiable. You should generally expect to pay 20 to 50% above market rent. For the sake of argument, let’s take 25%, which is roughly average. So you’ll be paying $1,500 a month for rent and an additional $375 for the purchase. If your lease is for 3 years, you will have a rent credit of $13,500. The median home value in Salt Lake City is $280,000. If you paid a 3% option fee on $8,400 and combined that with the rental credit, you’d have a down payment of $21,900 or 7.8%. Not bad.

The truth about rent-to-own homes

Want to know the dirty little secret that few buyers in your situation realize? If you decide you can’t or don’t want to buy the house at the end of the lease, you lose ALL the money you paid. This includes the Rent Premium and the option fee. Gone. All this. The seller keeps all the money and you have to call a moving van and start over.

You’d be surprised how many times this happens. The buyer may be facing some issues with the house and want out. Lost money. Buyer may not qualify for mortgage. Lost money. Or imagine the seller defaults on the mortgage and the property goes into foreclosure. Eh! Lost money.

So before you race to get the nearest rent to own or rent to own option, make sure you do your due diligence and inspect the house. Start working with a lender to qualify for a mortgage, and for goodness sake, make sure you like the house.

However, the thoughtful decision to rent your own house has its advantages.

#secrets #renttoown #deal

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