Is home ownership a dream of yours but it seems to be just out of your grasp? Having trouble getting a mortgage due to not having a large enough down payment, not the greatest credit, or even an unstable employment situation? The Rent To Own program may help you reach that goal of home ownership much sooner than you ever thought possible. This program has been around for awhile and did have a bad reputation at one point, but things are much better for the home buyers now. If you are new to the concept of Rent To Own, or knew it before and were skeptical, please read on to see if this option is the right option for you.
With the new stress test that was brought into place in 2018, it is becoming even harder for people to break into the home ownership market. The large down payment that is required may be to blame, but it can just as easily be due to credit or employment situations. Seasonal employment such as construction, or even self employed individuals can face a hard time when trying to get a mortgage even if they can comfortably carry the costs. In many cases, a mortgage payment would be very similar to the rent that they are currently paying, the only difference would be they are paying for their own home and not someone else's. Sound familiar? Credit can also be easily called into question, even with such simple things as a missed payment or too many hits on your credit check. Most of us have come across a hard time such as home or auto repairs, or needing to purchase a new vehicle, and our credit may suffer for a short period.
What the Rent To Own program does, in essence, is allow someone to buy the property for you until you can either build up your down payment or rebuild your credit. Lets look a little deeper into how the program works...
The first step is to meet with a RTO (Rent To Own) organization and determine the details to your specific agreement. This will include the total budget for your home purchase, and the length of your agreement, among other details. The length of the agreement is usually 3 to 5 years but may differ from one organization to another. The RTO organization will purchase the home in their name, and at the end of the term you will purchase the home from them at a price determined at the drafting of the contract. For example, the home in question is purchase for $300,000 today. In the terms of the agreement with the RTO, properties in the area increase in value on average 5% per year and your agreement is for 3 years. At the end of the agreement you will purchase the property for $347, 287.50 ($300,000 plus 5% interest compounded annually). If the market explodes and the value of the home is 10 times that amount, you still pay the agreed upon amount as stated in the contract. Alternatively, if the market falls, you must still pay the predetermined amount. Most Rent To Own organizations are very conservative on the annual increase in value of the property. In most cases you will be paying less than current market value for the property at the end of the agreement and you will already been living there for 3 to 5 years.
Some may say that this sounds to good to be true, right? Lock a property value in for three to five years and pay it off with rent? Well there is a little more to it than that. First off, during that time you will need to address what was holding you back in the first place, whether that be your lack of a suitable down payment or less than ideal credit. Luckily, the RTO organization helps you with both of these and that is the beauty of the program.
To get into the RTO program you must have some type of a down payment. The amount will depend on the RTO organization you use, but will be much less than the amount required for the purchase of a home. Once the amount of the home purchase and therefor monthly rent is determined, you will have to pay this amount and an additional agreed upon sum that will be deposited into an account to accumulate a suitable down payment. For example, if rent was $1300, the agreement may state that you will be paying $1500 per month and the additional $200 would be deposited into a savings account to accumulate for the duration of your contract. If it were 3 years, the down payment for that period of time would be $7200.
If the concern was your credit score, being in a contract makign monthly payments, will help you rebuild your credit score again.