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Lease Options or Rent to Own?
Finding a rent-to-own house is one of the many ways someone with
bad or no credit can buy a house. You will often find 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.
There are a few differences between rent-to-own and lease-option
agreements, although many people use the terms interchangeably.
With a rent to own (or rent to buy) home, the buyer makes an
agreement with the owner that part or all of the rent money will
go towards the down payment of the home, and at a certain date,
perhaps 2-5 years in the future, the renter will purchase the
home, using the money that was set aside as the down payment.
There is usually not much money put down in the beginning,
outside of what would normally be needed for a rental home, so
this is a good way to get into a home for little or no down
payment.
Another advantage to a rent to buy situation is that if you
compare how much rent money is applied monthly to the home
price, even if it is only 25-50%, it will still be much more
money paid on the principal of the house than if you had taken
out a loan for it. 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 renter who is tired of paying someone else's
mortgage and want to own your own home, this is one of many ways
that you can buy a home. One of the drawbacks is that you will
still need to purchase the home at a later date. This may be a
problem if you have bad credit, because you may still need to
qualify for a loan when it is time to purchase the home. 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.
From the book "Buying a Home When You Have Bad Credit-- 12 Ways
to Purchase a House When You Can't Get a Home Loan" by Alexis
Dey. © 2005-6 Mohave Publishing. All rights reserved. http://i-can-buy.com
About the author:
For more ideas on how to buy a house when you can't get a home
loan, look for Alexis Dey's exclusive FREE e-book, "Buying a
Home When You Have Bad Credit," which can only be found on our
site at I-can-buy.com.
For free rent to own agreements, as well as other free real
estate contracts and forms to download in PDF format, check out
the site at I-can-buy.com
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