Maybe Lease Options or Rent to Own?
Obtaining a Rent To Own home can become a great alternative for someone with bad or no credit can purchase a house. You will often find the terms of sale called something 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.
On that point 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 takes an arrangement with the owner that some or the majority of the payments will go towards the deposit of the home, and at a certain date, possibly 2-5 years in the future, the renter will purchase the property, applying the money that was set aside as the down payment.
There is normally not much money paid by the tenant/buyer at the start of the deal, outside of what would usually be needed for a rental house, so this is a good way to get into a house for little or no deposit. Another advantage to a rent to buy situation is that if you compare how much rent money is applied monthly to the house 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 tenant who is exhausted 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. If you change your mind down the track, you would face the drawback of loosing your rental credits that go towards your deposit. 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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