People who own property are typically 26% wealthier than non-home owners. When house values increase the home owner benefits even though they may only have a small equity position in the home. Just imagine if you owned a $150,000 house with 5% down ($7500) and house values increased by just 3%. In one year you would have had an increase in equity of over $5,000
Many people who have been turned down by traditional mortgage lenders are turning to the Rent to Own method of home buying. For many, the rent-to-own home may be the best option. Also called a lease-to-own house, the process works similarly to a car lease : Renters pay a certain amount each month to live in the house, and at the end of a set period — generally within three years — they have the option to buy the house. Each month of rent they pay is income for the seller, while a portion of it goes toward a down payment to eventually buy the home.
In many Rent to Own agreements the renters also have to pay an option fee and then a rent premium. The option fee is a set amount that the renter pays the seller. If, at the end of the lease period, the renter buys the house, the option fee becomes part of the down payment. If the renter doesn’t buy the house, the option fee becomes income for the seller. Rent premiums are an amount slightly above the typical rent, with a portion of that money going toward a down payment.
The finances of the Rent to Own property are usually based this example situation. The average house is worth $300,000, and typical rent would be $1,500 a month. Someone who’s renting to own might pay $1,700 a month in rent and then receive a $200 rent credit each month. Add the option fee, in this case $5,000. On a three-year lease, the renter would earn $7,200 in rent credits. Adding the earned rental credits to the option fee, the renter has accumulated $12,200 for a down payment.
Rent to Own properties will require a deposit, the same as if you were buying your own home. Most companies will require a minimum of $15,000 as a deposit. The monthly payment for a rent-to-own agreement will depend on your budget. The larger your payments, and the longer you make them for, the larger the accumulated downpayment will be when you exercise your purchase option and get a mortgage in your own name.
At the end of your rent-to-own agreement, the sum of your initial deposit and your monthly payments will count as a downpayment for your own mortgage. To know exactly how much of a downpayment you will need to consult with a mortgage broker to discuss getting the best possible rate.
Your local Angus Real Estate agent can help you find a property that will fit your budget. Choosing a Professional agent with local knowledge and experience will greatly enhance your real estate shopping experience. Choose from our Best Angus Real Estate Agents to ensure your receive the best possible advice when making your next property investment.
