Maybe Lease Options or Rent to Own?
Locating a Rent To Own house is one of the many ways someone with poor or no credit can purchase a house. You will frequently hear them called names like lease/options, lease with option to buy, lease purchase, lease 2 purchase, rent with option to buy, rent to own, or rent to buy homes. The most common name is Rent To Own, because it is exactly that – a try before you buy agreement.
There are a a couple of differences between rent to own and lease option agreements, although many individuals exercise the terms interchangeably. With a rent to own (or rent to buy) home, the purchaser takes an arrangement with the owner that part or the majority of the payments will go in favour of the deposit of the property, and at a certain date, possibly 2-5 years in the future, the renter will buy the property, using the money that was set aside to go towards the deposit for the home.
There is usually not much money put down in the beginning, outside of what would usually be needed for a rental home, therefore this is a great way to get into a home for little or no down payment. Another advantage to a rent to buy situation is that if you equate how much rent money is applied monthly to the house price, even if it is only 25-50%, you will be much better off then doing a normal rental, because in this case, the landlord receives 100% of the payments and you receive nothing.
If you look at how much money goes to the principal payment of a home with a typical mortgage loan, you will find that most of your mortgage payment in the beginning is just paying interest on the loan. A rent to own agreement, where the money goes directly to the payment of the home, could be saving you a lot of money in the long run.
With a lease-with-option-to-buy, a renter signs a lease agreement (often for a shorter period of time, like1-2 years, but it could be longer). The renter/buyer usually pays a sum in cash, usually non-refundable, to the owner in agreement to buy the house at a later date for the price agreed upon. The renter has the option or right to buy the home, so in the end they have a choice and can back out it they want. Some of the rent paid may or may not go towards the purchase price of the home.
This is a technique often used by real estate investors in periods when the interest rate is rising fast. This way they hope to buy the home at a lower interest rate on a later date. In the meantime, they will sublease the home to someone else, who will make the payments for them. Again, the terms “lease option” and “rent to buy” are pretty much used interchangeably today, so check with the owner to find out exactly what terms they are offering. Or approach an owner with your own offer for renting to own.
If you are a tenant who is exhausted of paying someone else’s mortgage and would prefer to actual pay off your own home, this is one of many ways that you can buy a home. One of the drawbacks is that you may decide not to purchase the home at a later date, and if this happens, you loose your rental credits. If your credit can be repaired in several years, this may be a great way for you to get your home now, and good motivation to clean up your credit for the future.
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