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Your Guide To Rent-To-Own Housing

Rent-to-own housing enables you to have the opportunity to lease a property from a landlord and purchase it at the end of the agreed upon lease term. During the contract negotiations, you and the landlord will predetermine a set price for the purchase of the property along with rent, which will include a portion that will goes toward a down payment. The rent-to-own process proves to be successful because it offers incentives for both you and the seller to follow through with the deal. A lease period is negotiable, however, it will typically span from one to three years.

How Rent-To-Own Housing Works

Similar to other renting options, you will pay fair market rent each month you reside on the property. Typically, people who choose rent-to-own housing are attempting to improve their financial standing over the lease period. Rent-to-own housing allows people with zero credit or bad credit to enter into a contract. Renters may also want to test out the home and the surrounding area before committing to a long-term purchase.

At the end of the lease period, renters have the option to leave or purchase the property. This is referred to as an option fee and is different from a security deposit. The renter will pay the option fee at the beginning but will not be credited back if he or she decides to not purchase the property at the end of the lease. The option fee, typically, ranges from 2.5 to 7 percent of the eventual price the person will pay for the property. Keep in mind that a lease purchase is different from a lease option. A lease purchase means that the buyer is legally obligated to buy the house at the end of the lease period.

While the lease period is active, the seller must maintain full insurance for the home and pay all the property taxes. He or she will also be responsible for the homeowner association fees and any other necessary costs such as repairs. Regardless of if the seller chooses to cover these costs, the buyer should purchase some type of renter’s insurance policy to cover any potential personal property losses and provide liability coverage in the instance someone is injured while on the property. The price of the property will stay the same through the rent-to-own agreement. In some instances, this provides the renter an opportunity to increase his or her credit score. Other positives of rent-to-own housing include the following:

  • Immediate move in
  • Having a portion of the rent applied towards the price of the property
  • The acceptance of those with bad credit
  • The ability to purchase the property for the current market value

Purchase Price

In some instances, the buyer and the seller will agree upon a purchase price during the contract negotiations. Usually, the purchase price will be higher than the current market value of the home. The current market value is the exact resale value of a property and gives potential renters a price that they can start their negotiations with. The buyer and seller might determine the purchase price for when the lease expires, which will be based on the market value in the future. More often then not, the buyer will prefer to set the purchase price for when the contract is signed so he or she will not be faced with increasing home prices.

Section 8 Rent-To-Own Housing

A Section 8 Housing Choice Voucher helps low-income participants pay for rent and rent premiums during their set lease. Once the lease is complete, renters may be able to use their homeownership voucher to make payments on the mortgage once the property has been purchased. The Housing Choice Voucher (HCV) homeownership program enables low-income families that are under the assistance of the program to use their vouchers to purchase a property and receive monthly benefits to cover the expenses. Keep in mind, however, that the HCV program is limited to only low-income families and is not offered by every local Public Housing Agency (PHAs). Local PHAs have the option whether to implement the HCV homeownership program in their jurisdiction.

If you are diligent with your couponing and with your shopping, you can stock up on those types of products whenever they are offered at a discount and then you do not have to buy more at full price for a while.To receive the vouchers, you must apply at your local PHA office and meet the eligibility qualifications. Voucher benefits will be implemented towards your mortgage each month. However, it will not be enough to cover the entire amount. You must still qualify for the property’s mortgage and also provide a down payment to complete the transaction.

Once you submit your application to your local PHA representative, he or she will call you to discuss information regarding your family size, annual income and resource. The representative will then contact outside agencies, your current or former employer and your local bank. Along with these aspects, the property must meet the PHA initial housing standards inspection and an independent home inspection. To be eligible to receive HCV benefits, you must meet these qualifications:

  • Fall under a specified annual income
  • Be Employed (does not apply to the disabled nor the elderly)
  • Be a U.S. citizen or have eligible immigration status
  • Meet family size requirements
  • Meet any additional eligibility qualifications set by your local PHA office

How To Protect Yourself From Rent-To-Own Housing Scams

When going through with the rent-to-own process, make sure that you get all the details of the deal in writing. The law will not enforce the agreement unless it was written down on some type of contract. Review the agreement as well, make sure you understand which part of the payments are for rent and which ones will be applied towards the overall purchase.

In some instances, a landlord will attempt to make you pay for repairs to the property. Make sure you do not get scammed and allow this to happen, since it is the landlord’s responsibility during the rent-to-own agreement. Keep in mind, maintaining the property, such as mowing the lawn, raking leaves, etc., is different from repairs to the property. Consider going to the local county recorder’s office as well. They can provide you with helpful information regarding the property, including the amount of the seller’s mortgage. This helps you clarify if the purchase price will cover the amount needed for the seller to pay off the mortgage.