A lease option (better known as rent-to-own) can work out beautifully for you as the tenant-buyer if you walk into the arrangement being prepared to be a homeowner. We want everyone to succeed in their dream of homeownership, so here are four questions you need to ask yourself before you decide that renting to own is for you.
1. Will You Qualify for a Mortgage Later?
Renting to own essentially pushes the purchase date out 12-18 months so that you have the time to become qualified for a FHA loan.
So if you can’t qualify now, what is your plan to qualify in a couple years? If you need to repair your credit, have you spoken with a credit reparations company to help you with that? Do you have a savings account set aside to save up for your closing cost? Are you committed to make the necessary changes so that you can own your home within 18 months? When you have a plan in place, you’re much more likely to succeed.
2. Have You Done Proper Property Value Research
You are as responsible as the homeowner for knowing about the property option price, and condition of the property. Educate yourself about the area by doing your own research and speaking to other real estate professionals (real estate broker, mortgage broker, etc).
The option fee down payment is 3.5%-5% of the agreed option price paid upfront, and 100% of that will count towards the option, once you exercise your option to buy. If you decide not to exercise your option to buy your option fee down payment is forfeited if you choose not to buy, so knowing that you’re locked into a good deal, with honorable people, will make you all the more motivated to make sure that, at the end of the option period, you are ready, willing, and able to follow through with the purchase.
3. Do you truly want to be a homeowner?
Although you are renting to own, you will not be a typical tenant. Not only do you put down a non-refundable option fee down payment of 3.5%-5% (which again 100% of that will count towards your option if you buy), you are also responsible for maintenance and management of the property. Unlike a traditional rental, where you call the landlord when the toilet is broken, or the leaves need to be raked, you as the tenant-buyer will now be responsible for taking care of these kind of things. 99% of the homeowners we work with provide a 12 month home warranty - which typically covers all appliances and major systems. Throughout the home warranty, you will be responsible for any service fees, and/or deductibles. We want to make sure you are successful and fully prepared for homeownership.
4. Read the Agreements
We recommend that you have a real estate attorney read through the agreement with you. We recommend consulting an attorney or going through the agreement line by line with the homeowner and having them explain it to you because knowing what you’re agreeing to is essential to a successful outcome.
Renting to own is a fantastic option for many future homeowners, and we want to see you succeed - it’s why we do what we do - but the bottom line is that, like with anything else, you need to educate yourself on what you’re getting into. When you are knowledgeable, there is no need to worry or fear.
If you’re ready to explore renting to own for yourself, contact us and we’ll answer all your questions.