By Derick B Van Ness
For many Americans today the dream of home ownership seems out of reach. Prices have skyrocketed over the last few years, and right now it’s nearly impossible to get into a home without good credit and mega bucks for a down payment.
This can be discouraging, especially to those with larger families or small children. Having too little room and no back yard, and hearing the neighbors through the thin walls of an apartment building is not what most of us want for our brood.
However, in recent years an increasingly popular and mutually beneficial option has emerged for people facing these or other related home-buying issues. The process is termed “how to buy a rent to own house” (which is similar to a Lease Option) and it can be a viable solution for anyone who finds themselves with limited down payment money, income, or credit. It can allow an aspiring homeowner to get into a house before they have completely fixed all of their credit problems, and with less money out of their pocket.
Even more encouraging is that the rent to own house buying process doesn’t usually involve getting qualified by a Loan Broker or a bank before moving into the house. Because the Seller is a real person with a real need to sell their house, they are typically more flexible and willing to work with a buyer than a financial institution would be. And depending on the situation, the seller is quite often able to accept a down payment that is considerably less than a bank would require. These pluses are very appealing to many Americans who have been unable to keep pace with high housing costs, or who have had events which have temporarily lowered their credit score.
In exchange for these advantages, the buyer of a rent to own house needs to be flexible in other ways. Usually this type of buyer is expected to pay close to (or even slightly above) market value for the house and the may also pay above-market rental prices. This is because of 2 things:
1) The home seller usually needs above-market rents to help cover his mortgage.
2) The home seller will often give “Rent Credit” to the potential buyer in exchange for a higher monthly rent.
For example, take a home worth $300,000 with a monthly mortgage payment of $2,200. The owner needs to sell it, but there are several others in his area that are also for sale, a few perhaps listed at even lower prices than his. The home seller decides that he wants to sell to a rent to own buyer so that he can get the home sold quickly and for the price he needs.
The seller may offer the house at $295,000 with a monthly payment of $2,400 and a 3% Option Consideration (which is money or “down payment” giving the buyer the Option to purchase the home in a pre-determined amount of time at a pre-set price). Most times this Option Consideration is non-refundable even if the buyer is unable to purchase the house.
In this example, the rent to own buyer will bring the 3% Option Consideration to the seller (before move in) and begin paying the rent. They will have already agreed upon the price of $295,000 (which can’t increase even if the value of the home does), and they will have agreed that the buyer will have a pre-determined amount of time to exercise their “Option to Buy”- for example, 2 years.
It may also be agreed upon by the Buyer and Seller that $600 of the $2,400 monthly rent will be considered “Rent Credit” and applied toward a down payment. This Rent Credit money will be used when the rent to own buyer finally qualifies for a loan, and officially takes ownership of the house. (Within the agreed upon 2 years)
This is a simple example, and terms are negotiable in transactions such as this, but this scenario is common and was used to help clarify some of the elements of the process.
This creative process of how to buy a rent to own house is becoming more and more popular because it creates a “Win – Win” scenario. The Buyer is able to get into a home with limited money and credit, and the Seller is able to get a fair price for their home and get it sold more quickly. Both sides are better off than before, and the process meets all of their needs. In today’s tumultuous market this tried and true method is allowing many Americans to buy and sell homes that they wouldn’t have been able to through more “conventional” methods.
For more information on How to Buy a Rent to Own a House, feel free to read the articles at the following links:
Also, if you are in Southern California, we have “Rent to Own House” or “Lease Option Home” programs available, and can help you find one. Contact us at: 800-883-0881 or let us know what you want at by submitting a form at:
Derick Van Ness has been a full time Real Estate Investor since 2002, and has been involved in buying, selling, lease optioning, renting to own, and flipping over 100 properties. He currently owns Freedom Home Buyers and is a Life Success and Real Estate Coach. Derick makes his home in sunny Southern California.