What is Rent-To-Own?
A Rent-To-Own home sale allows a buyer to rent a seller's home while they are working to improve their credit. It lets the buyer get into their next home before they can actually qualify for a mortgage. The buyer can then purchase the home at a later date at a predetermined purchase price.
Why do Rent-To-Own?
For sellers - If you are having difficulty selling your home this greatly increases your chances. Let's face it, in today's real estate market you need all the help you can get to sell your home. You are reaching to a much greater pool of buyers than conventional home sellers. Rent-To-Own sales allow you to move on with your life by getting a tenant-buyer in quickly. It can relieve the burden of two mortgage payments, having to look after an empty home or even allow you to move to your next home much quicker than if you were only selling conventionally.
For buyers - The biggest advantage for buyers it that Rent-To-Own allows you to move into your home NOW before you have to obtain financing. Rent-To-Own gives you time to repair your credit or pay off some other debts or build up a down payment. With the current lending crisis it is VERY difficult to qualify for a mortgage, which means many good buyers with damaged credit cannot buy homes.
What do I need to do a Rent-To-Own?
See the boxes on this page to show you the services and support help you will need to complete a rent-to-own. You will want to keep it easy and let experts do most of the work for you and with you.
Realtor™ - You will need to work with a Realtor™ that understands Rent-To-Own. Realtors™ that don't understand how Rent-To-Own works will only hinder you selling or buying your home. How do you find a Realtor™ who understands Rent-To-Own? Click on this link for the Realtor referrals. Can't find one near you? Email my office and we will get you in touch with one near you. info@wendypatton.com
Mortgage Lender - If you are the buyer you will need a lender who understands Rent-To-Own. If you are the seller, your buyer will need to have a lender. Either way, you'll need a mortgage lender who understands how to work with Rent-To-Own buyers. A good mortgage lender can treat a Rent-To-Own as a refinance instead of a new mortgage. I can provide you with mortgage lender contacts that can help you finance Rent-To-Own transactions right here.
Contracts - Rent-To-Own transactions require a specialized purchase agreement, an option agreement, a rental agreement, and often a memorandum of option. These contracts are all modified for Rent-To-Own transactions. Not having the proper contracts can make or break a Rent-To-Own transaction. I can provide you with the contracts you need for your next Rent-To-Own transaction. Go to my bookstore to see what tools are available to help you complete your transaction.
Credit Report - If you are a home seller who is selling your home on a Rent-To-Own basis, you will need to be able to check your prospective buyer's credit as part of your screening process. To check their credit you will need to pull their credit report (Never do your screening based on a credit report your prospective buyer gives you). I can provide you with a resource so you can access your applicant's credit.
An Example of How Rent-To-Own Works
A seller is selling his home on a Rent-To-Own basis for $150,000 with a monthly rental rate of $1,200. A prospective buyer, who cannot qualify for a mortgage right now, wants to purchase the home. They agree to an option fee of $3,000 (or 2% of the purchase price) which secures the right for the buyer to purchase the home within 18 months for the price of $150,000. This option fee will apply to the purchase price when the buyer purchases the home later, but is non-refundable if the buyer doesn't purchase.
Additionally, they agree that if the buyer pays the rent on time every month they will receive $100 per month as an option credit, which applies toward the purchase price of their home.
After 18 months the buyer is able to qualify for a mortgage and purchases the home. The option fee of $3,000 is applied against the purchase price of $150,000 leaving a balance of $147,000. Additionally, by paying on time every month the buyer also accumulated $1,800 more in option credits which are deducted. This leaves a final balance to mortgage of $145,200.
If you want more detailed information on rent-to-own check out my books and information on my bookstore.
