There were a great many loans being approved that should never have qualified in the first place and when the majority of these end up in default it drives the economy into a downward turn, causing even more problems for the housing market. As a consequence the mortgage guidelines have been tightened to the point that many potential homeowners no longer qualify. In most cases it only requires a few items, or corrections, for them to get a loan. The problem is that if a family chooses to buy home when prices and interests are low but has to wait a couple of years to meet the qualifications, before the conditions can be met, the real estate market climbs and these families are saddled with a much larger mortgage payment and total cost of the home.
Why Consider Rent To Own?
Let´s say that, for whatever reason, your credit score is too low to get you approved for a home loan but you have a stable income. Are there any options for families in this situation that would allow them to get the process of buying a home started while they are trying to improve their credit rating and qualify for a home loan? Actually there are. Many potential homeowners have decided to get involved in a rent to own home program. These programs are an excellent choice for families in this situation and have many benefits for both the tenant buyer and the property owner.
Sagging property values have caused many homeowners a great deal of difficulty selling their homes, especially if they plan to get anywhere close to what they paid for their home in the first place. Homeowners across the country are losing as much as 50% of the original value of their homes and many are desperate for solutions to this problem. Many homeowners are using a rent to own option to try to get the original value of their home or as close to it as possible. A rent to own option is fairly simple. The renter agrees to pay a set amount each month that is above the rent total. This extra money is applied to the price of the home and the renter agrees to pay the balance off within a specified period of time. The owner usually sets the final price higher than the current market value of the home as a way to regain some of their original investment and the renter has an opportunity to make payments on a home while at the same time improve their credit ratings enough to make final purchase within the time period specified.
Seller VS Renter Benefits
We can easily see the benefits for the seller. Besides the chance to start paying on a home however what are the benefits for the renter? Rent to own situations are usually based on the renter’s ability to pay. In other words if your income reflects that you can meet the rent, and the house payment with it, you will usually qualify. Sellers will also want to see a target date for the renter to be able to get a loan to pay off the balance. It is rare for a seller to want to carry the payments all the way to the total. This does mean that the renter will not usually have to pass a credit check. In these days of credit checks for everything from apartment rentals to jobs, this is a huge bonus.
Finally for the duration of the contract the renter is responsible, in some case, for paying the HOA. The taxes and insurance on the home are the home owner’s responsibility. They can be released from this responsibility through the terms of the contract but you do not have to agree to this as it can amount to a great deal more cash out of your pocket.
The economy is improving and housing prices have begun to climb slowly. With a rent to own contract the price you agree on in the contract is the final price. If the home appreciates in value the only price the renter will have to pay is the original agreed on price. Once the contract is locked in the appreciation value of the home will go directly to you and your family, not the person who owns the home. Keep in mind that this only applies if both you and the owner abide by the terms of the contract. In some contracts even a single late payment can void the terms and you can lose your investment.