Did you know, according to recent data disclosed by Home Mortgage Disclosure Act (HMDA), 16.1% of all mortgage applications in the US were denied in 2020.
This could be the result of many things but once your mortgage application is denied, do you think is there any other way of buying a home without having enough money?
Yes! There’s a way in which you will rent and own the home at the same time.
Rent-to-own homes are becoming increasingly popular in today’s real estate market due to many obvious reasons. These programs are contracts between a buyer and a seller in which the buyer rents the home for an initial period of time with an option to purchase it later on a pre-determined date.
The renting party makes regular payments towards ownership until they have paid enough money to have clean equity of the property.
There are several benefits of a rent-to-own contract. For instance, it provides individuals who can’t get an approved mortgage due to a low credit score or any other issues with the opportunity to become a homeowner.
It also gives people who don’t have much cash upfront but have good credit and steady income another way to own their home. If you’re interested in buying a home through a rent-to-own program, the article covers everything from why you should buy rent-to-own homes to how to find-to-own homes.
Why You Should Buy Rent-to-Own Homes?
Rent-to-own homes are the combination of two contracts: lease purchase and lease option.
Both of these programs are beneficial because they allow you to get into the real estate market without having a large cash down payment or being approved for a mortgage. These programs let you try out the house and neighborhood before you buy.
You can make a small upfront and then make monthly payments with the rent until you have enough equity to buy the home. This can be a good way to be a homeowner if you have bad credit or lack funds for a down payment.
Things to Consider Before Buying a Rent-to-Own Home
Obligation to buy
When going through a lease-purchase agreement, you must buy the home when the lease agreement ends. Otherwise, you not only lose a fortune of upfront money and monthly payments depositing in the down payment value but the homeowner can also file a legal case against you for leaving the property.
In addition to the upfront fee of around 1-5%, the buyer in a rent-to-own home also has to pay higher rent as compared to the average in the neighborhood. This is because some of the portions of rent are going towards the down payment.
In some agreements, the buyer has to offer the maintenance costs. This is another crucial thing to consider because maintenance costs may account for around 1-4% of the total home value every year. So, make sure about the maintenance costs before getting into any rent-to-own agreement.
Lease-option Vs Lease-Purchase
In both scenarios, the process of upfront, monthly payments, and down payments remain the same but in the lease option, you are not obligated to buy the home at the end of the contract.
The lease option has an advantage and allows you to decide whether to buy the property or leave it due to personal reasons.
However, according to the contract, you may lose the down payment and home equity if you choose to leave the property.
In contrast, a lease-purchase contract puts an obligation to buy the house. If the buyer changes his mind and chooses to walk away when the contract is over, the equity, deposit, and down payment will be at risk along with the possibility of legal action against him.
How to Find Rent-to-Own Homes?
Finding Rent-to-own homes is quite different than finding a rental or typical home. However, we have listed some of the most practiced and practical ways you can find rent-to-own homes.
Consult an Agent with Experience in Rent-to-Own Homes
Once you have decided that rent-to-own is the most suitable option for you, you’ll need to find an agent who brings vast experience in this type of program.
An agent who specializes in this field can help you negotiate a contract that’s suitable for your circumstances.
In our wide experience of dealing with rent-to-own home sellers, we have observed that sellers don’t usually provide much assistance when dealing with buyers. They are always trying to catch huge amounts of upfronts and high monthly additional payments.
And since rent-to-own programs differ from traditional real estate transactions. There are numerous terms and conditions only an experienced real estate agent can manage productively.
Look For Pre-Foreclosure Homes
One of the easiest and most effective ways of finding rent-to-own homes is to look for pre-foreclosure property. In this type of situation, the seller has the idea that the home might be exquisite by the bank as they don’t have enough finances to clear the home from the mortgage.
And if the home goes into foreclosure, the homeowner will eventually lose a huge amount of money. For that reason, many homeowners try to sell their houses through a rent-to-own program before they get into any trouble.
Therefore, you can take advantage of the scenario and find an incredible rent-to-own home with affordability.
However, you’ll need to consult an agent with expertise in foreclosure and rent-to-own properties. Whether by using the network of your agent or by looking online on websites such as Foreclosures.com, You can find a decent home ready to go with a rent-to-own program.
Find a Direct Rent-to-Own Home Seller
There are innumerable homeowners looking to rent their homes while trying to earn some extra money. They may not be interested in a rent-to-own program but since you start living in the house, your agent may float them to sign a rent-to-own deal.
Sometimes sellers, who are facing hard times selling their property, eventually agree to sell rent-to-own if the agent approaches them cleverly.
Additionally, you can also do some browsing and find numerous websites on the internet which provide direct dealing with the homeowner. Although there is a requirement for an agent who can suggest the prices and can undergo contracts and documents, you can look for a home by yourself.
Find Online Portals with Rent-to-Own Specialty
Exploring online portals and websites can be another way of finding rent-to-own homes.
You can go through Internet search engines and surf websites such as Public Records, Real Estate Wholesalers, Hidden Listings, Rent-to-Own Labs, etc. All these websites have various homes which may go through rent-to-own.
Although there are not any specified lists of rent-to-own homes, you can still find several homes, with the assistance of your agent, that will be ready to make an agreement.
Work With Real Estate Brokers
Working with trusted brokerages is another considerable option when finding a rent-to-own home. They can help you find the right property at affordable prices.
When you go directly to a homeowner, there’s no guarantee that they’ll be willing or able to work with you. And if they are, it’s likely to be at a price that isn’t as good as what you could get through a brokerage.
Brokers know exactly where to pitch the homeowners so that an affordable home can come into the market. This way they will get you something that suits your budget and needs.
Also, brokers often have business relations with reluctant landlords that can make things easier when it comes time to sign a rent-to-own lease option or make other arrangements.
Use Your Own Network
If you decide to use your own network to find rent-to-own homes, you must be creative and diligent. You can try contacting friends and family, going to social gatherings, and even using dating websites to find a direct rent-to-own home seller.
You can also go to professional groups, join real estate clubs, and attend seminars to find more people who are involved in the rent-to-own real estate industry.
The Bottom Line
The real estate market is growing each day and buying a property is getting harder than ever. With the options available with rent-to-own homes, there are still chances that people with an unapproved mortgage and low credit can be homeowners.
The only thing they need to do is find a good property, this can be done by considering the factors discussed above.
Finding a rent-to-own home can be different but not difficult. Just reach out to Logan at www.nearentalproperties.com and he can get you in a home by the end of the week! Houses go fast and we don’t have many that come open.