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Lease Options or Rent
to Own?
by: Alexis Dey
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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.
About The Author
Alexis Dey
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. Copyright 2005-6 Mohave
Publishing. All rights reserved.
For more ideas on how to buy a house when you can't get a home loan, look
for our exclusive FREE e-book, "Buying a Home When You Have Bad Credit,"
which can only be found on our site at http://I-can-buy.com
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| Gar C. May, Broker/RealtorŪ |
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| Copyright © 2005
Lease Purchase Solutions, Ltd., All Rights Reserved
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