One of the most flexible strategies for purchasing a house is renting to own or leasing with an option to buy. How does rent to own work? The process is much like it sounds. A homeowner or investor rents a property to a tenant or tenants, giving the tenant the option to buy that home after a set time period at a set price.
Some homeowners use this process to sell their home and move on, even if it involves the risk of taking rent for a period of time, only to have the tenant refuse the option. If you are looking for a home but your credit isn’t so good, and you don’t have enough for a conventional down payment, you might think about renting to own. It helps you get into your home sooner and use rent credit to build your down payment while your credit grows.
If you are an investor, the process of selling a house this way is like marketing a “covered call.” The tenant pays you a premium up front for the option to buy the property, known as the deposit. At the point of expiration, that deposit goes toward the down payment, along with rent that you have decided to credit.
Amansad Financial Services provides private lending solutions to those currently living in their home within an urban center but cannot refinance. We only provide Residential Lease Option (Lease-To-Own) refinances.
Amansad Financial also provides Seller Finance Purchasing which is a far greater alternative to Rent-to-Own that is commonly overlooked by many renters looking to purchase.
Just how does rent to own really work?
The house lists as a “rent to own”. The rent is probably at the higher end of the area rentals. The option deposit is generally starts between 5 – 10 percent of the value of the property, some property owners may allow less. This deposit is non-refundable and goes toward the purchase price. The landlord screens your credit, employment and possibility of actually buying the house when the option term is up.The tenant occupies the property, the landlord takes the rent and the deposit for the option. In addition to the option agreement, both parties sign a lease as well.
Some of the rent goes toward the purchase price. The exact amount of this rent credit is determined by the landlord and tenant and is to be stated in the contract agreement.If the tenant decides not to purchase the house at the end of the period, they loses the option deposit and any rent credit.
Is this a good idea?
If you’re the homeowner/investor:
You get a higher rent, usually.
You get an option deposit and a security deposit up front.
The tenant is more likely to treat the house like it is his or her own.
You get a guaranteed price on the house if the tenant takes advantage of the option.
In a way, it’s like getting your mortgage taken care of ahead of time. You actually can make more money than you would by just selling the house, because you get the rent on top of the selling price. The amount of the rent credit you grant is up to you.
If you’re the tenant/purchaser:
You get to make a dry run on the neighborhood and the house. If they seem a lot less attractive than you thought at first, you get to walk away.
If your credit is poor, you can build credit while the option term proceeds, building your down payment with rent credits.
Is this a bad idea?
If you’re the homeowner/investor:
If the market is trending upward, you may have guaranteed a price that is below what the market will yield at the end of the option period.
It is a hassle to screen possible tenants at first, unless you hire a property management company, which represents another expense.
The tenant can walk away, losing only the deposit, but if he keeps to it, you can’t make any changes.
If you’re the tenant/purchaser:
You are paying high rent just for the “option” to buy the property. You lose the deposit if you don’t buy the house.
There is no guarantee that a lender will give you funding at the end of the term. You might want to buy the house, but without a loan, you will lose your deposit.
How can Amansad Financial help?
Amansad Financial can assist Rent to Own Programs for those currently living in your home within an urban center but cannot refinance. We have a fresh approach that allows us to structure our Rent to Owns different than most companies. We have connections to funding sources and affiliate companies to ensure the contract is structured and adheres to Canadian Mortgage Insurer guidelines. The required option consideration is generally 10% or greater. Why? We want to ensure that there is an adequate equity a the end of the term to withstand market fluctuations and provide more lender availability. If a Rent-to-Own refinance is something you may need to take advantage to stay in your home, get in touch. We have the contacts that may be able to assist.