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Rent To Own: Pathway To Home Ownership

Apr 11, 2008
You're driving down a quiet street, and there it sits: the home of your dreams! Whether that home is a cute little bungalow, a stately four bedroom century home, or a modern split level ranch style home, you fall in love with it at first sight. Spring flowers have just begun to peep through the mulch in the carefully maintained garden. The flagstone walk is covered with a thin layer of powdery snow. A privacy fence encloses the little yard you've always wanted. Completely besotted, you rush to purchase the home, only to find a few months later that the neighborhood is noisy, the schools are terrible, property taxes are outrageous, the flower beds have been invaded by neighborhood cats, and the front door never quite closes properly. The roof leaks. Then the plumbing goes. Your dream home is a money pit. And there you are, stuck in a thirty year mortgage.

Rent to Own is a very good option for families who are credit challenged but have a steady income. It is also good for those who do not have a deposit saved but want to own a home right away. Then there is the handyman, who is willing to trade his skills for his deposit. All three families are good candidates for a rent to own plan, or a lease purchase.

What is Rent to Own? Rent to Own, also called Lease Purchase, is a means of gaining home ownership without a large down payment or the ability to qualify for a conventional mortgage. By paying just a little more than what would be charged in a mortgage payment or monthly rental, the tenant gains the right to purchase the home at some point, usually three to five years in the future. During the term of the contract, a percentage of each month's rent goes toward what would have been the down payment. The total purchase price is locked in at the time the land contract or lease purchase agreement is signed, a great advantage when home values are rising.

During the period of the agreement, the tenant has the opportunity to repair his credit in order to qualify for a conventional loan. When the agreed time period has elapsed, the tenant can either exercise the right to purchase the home or vacate the premises with no futher obligation. Thus, Rent to Own has many advantages for both the buyer and the seller. The buyer gains a home without having a large down payment up front.
The trade-off is a slightly higher monthly payment than a standard mortgage or rental contract would normally charge. The buyer also gains the opportunity to get to know the home and the neighborhood really well, over several seasons. If the house has any problems, they are usually discovered during the appraisal and inspection phase. The buyer and seller then have a chance to negotiate any repairs that might need to be made. That way, there are no nasty surprises after closing!

The savvy tenant will have taken the opportunity to repair his credit history and build up a savings account before the lease term expires. However, if the tenant is still unable to qualify for a conventional loan at the expiration of the agreement, the seller is sometimes willing to finance the necessary loan himself, without a bank being involved. If the seller is not willing to do this, the buyer will lose only the percentage paid toward purchase of the home and nothing more.

Rent to Own is also a good option for a military family, diplomats, or temporary workers. Instead of being locked into a mortgage on a home they might have to leave in a few years, the family can have the benefits of home ownership while retaining their ability to move to the next post quickly. Consider all your available options, and you will find rent to own a very helpful jump start on home ownership.

Time becomes your friend in a lease purchase. Time allows you to repair your credit, helping you qualify for a conventional loan. Time reveals any flaws in the house or the neighborhood that might make the home less desirable for you and your family. This prevents you from becoming locked into a long term mortgage on a home that does not meet your family's wants and needs.
About the Author
P.Sharp has been working in Australia's real estate business for the more than 15 years, helping families find and own their dream home. In recent years, he's found rent to own as the best way for families to own homes without impacting their finances.
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