What is Rent to Own?

Rent to Own, sometimes called Lease with an Option to Purchase or Lease Option, is a method of purchasing a home when credit or other circumstances don’t allow the buyer to qualify for a conventional mortgage.

Rent to Own gives the buyer the benefit of time.  The buyer can dedicate 1 to 3 years (or more) getting their finances in order and showing a steady record of employment and on time lease payments over the years to a potential lender.

Rent to Own can be structured in a variety of ways, but always requires a small down payment, call the Option Consideration.  This is really earnest money, paid to the seller, indicating the tenant buyer’s sincerity to purchase.  This down payment can be any amount but 3 to 5 percent of the initial purchase price is required.  If the tenant buyer fails to eventually purchase the home, the Option Consideration is forfeited.

Although some sellers are willing to put a portion of the rent towards the purchase price of the home, for accounting and legal purposes, we find it much simpler to discount the price of the home.  So, for instance, if the house either appraised or had comparables selling at $80,000, we would sell the home to our tenant-buyer for $76,000, discounting the price by $4,000.  If the Option Consideration were $4,000, that means that the tenant-buyer would be approaching a lender asking for a loan for $72,000.  Depending on your income and family size, we can often find down payment and closing costs assistance for our tenant-buyers.  Tenant-buyers need to have steady, reliable income, the ability to pay the rent payment on time every month, and the discipline to budget and save, as there is usually some further money required to purchase the home.

Rent to Own truly can be a win-win situation for families who want to own their own homes.  For those financially strapped because of medical illness, divorce, employment problems and lay-offs, or bad or no credit, Rent to Own gets you into your own home now, with time allowed to resolve financial concerns and get your life back on track.