Secrets to Know About a Rent-to-Own Agreement

Then you are sick and tired of renting. You want to own your own home, but you don’t have a lot of down payment. You’ve no doubt heard of “the perfect solution”: rent-to-own. But is it really as perfect as everyone says? There are some secrets about renting to own properties that you should know. They are the most overlooked aspects of a rent-to-own agreement. So let’s find out the lowdown on leasing.

How rent-to-own works

Is that how it works. A house is rented with an option to buy. You will have a lease that will generally last 2-3 years. The seller will also expect you to place some type of down payment or option fee. This is usually 1 to 7 percent of the agreed purchase price. In addition to the rent, you will pay what is called a rental premium or rental credit. These additional amounts go toward the purchase price of the home.

Let’s see how a rent-to-own in Salt Lake City, Utah would work. As of January 2017, the median rent for a 3-bedroom, 2-bathroom home in Salt Lake City is $ 1,500. Now the additional amount you will pay for the purchase is negotiable. Typically, you should expect to pay 20-50% above the market rent. For the sake of discussion, let’s go with 25%, which is roughly average. Therefore, you will pay $ 1,500 a month for rent and an additional $ 375 for the purchase. If your lease lasts 3 years, you will have a rental credit in the amount of $ 13,500. Median home values ​​in Salt Lake City are $ 280,000. If you paid a 3% option fee of $ 8,400 and combined it with the rental credit, you would end up with a down payment of $ 21,900 or 7.8%. Nothing bad.

The truth about rent-to-own homes

Want to learn the dirty little secret that few buyers in your position realize? If you decide that you cannot or do not want to buy the house at the end of the lease, you will lose ALL the money you have paid. That includes the rental premium and option fee. Missing. All of it. The seller keeps all the money and you can call a moving van and start over.

You would be surprised how many times this happens. The buyer may have some problems with the house and wants to get out. Lost money. The buyer may not be able to qualify for a mortgage. Lost money. Now imagine the seller defaults on the mortgage and the property forecloses. Oh! Lost money.

So before you rush to acquire the rental property closest to the property or lease option, be sure to do your due diligence and have the home inspected. Get started with a lender to qualify for a mortgage and, for God’s sake, make sure you love the house.

However, a calculated decision to rent to own a home also has its own benefits.