Rent-To-Own -- also commonly known as lease to own, lease-option and RTO -- is an agreement between a home seller and potential buyer that allows the buyer to move into a home immediately, paying rent as part of a contract to purchase the home.
How exactly is Rent-To-Own Different from Renting and Owning a Home? We've listed the pros and cons in an infographic below.
Rent-To-Own is a more affordable option for aspiring homeowners to lease a home while applying a portion of their rent payments towards the greater goal of ownership. This allows families to enjoy the benefits of owning a home, while, at the same time, developing an investment.
Lease-to-own homes are an exciting opportunity for those who have sought out financing through traditional banking avenues only to find that their finances and credit history make them ineligible.
It is common knowledge that good credit is crucial when buying a home and, for the year 2014, according to QualifiedMortgage.org, "a credit score of 620 or higher is typically what's needed to buy a house with a mortgage loan."
Credit Concerns? No Problem.
Some aspiring homeowners fall short of this requirement and, fortunately, renting-to-own allows them the time to work on their credit, while still being able to live in the home of their choice.
In many places, rent prices continue to rise while sales prices have leveled off, affording good borrowers a strong motive to become homeowners. Buying in this type of housing market not only makes financial sense, but helps foster a sense of community and confidence in neighborhoods.
Typical RTO agreements involve standard rent payments with an extra amount paid monthly (called a rent credit) that is saved in a separate escrow account to be used towards the down payment for the purchase of the home at the end of the lease. Check out the infographic below for a more detailed illustration of the Rent-To-Own process.
When arranged properly, this relationship greatly benefits both the buyer and seller. Buyers, often considering Rent-To-Own because of a dinged credit history or limited savings for down payment, get to develop equity in their home and do the work needed to secure a mortgage loan. Sellers with property they are having difficulty finding buyers or tenants for have stable tenant occupation to cover mortgage payments through the term, plus a small profit and expanding equity in the property before it sells.
As illustrated from the infographic above, at the end of the lease term, the renter/buyer has the option to secure a home loan and purchase the house. In most arrangements, money saved from rent payments during the course of the term goes into the purchase at the time of the sale (serving as a down payment, or a large portion of it, depending on the lease agreement). The buyer also has the option to walk away from the property at the end of the lease term, though that most often involves walking away from the down payment investment made throughout the duration of their stay. For people interested in Rent-To-Own options, we offer expert Rent-To-Own specialists who can answer any questions you may have about credit, the process and more. Just like owning a home, renting-to-own is a process that requires considerable care, effort, and reward.
The benefits of choosing Rent-To-Own include securing market value to developing equity and having the chance to move into a home sooner. Potential buyers have the opportunity to fix financial difficulties that will benefit them in the long term, plus get to try out their home before having the option to have a long-term mortgage.
As with most things, nothing is without risk. Read this article on How To Protect Yourself From The Possible Pitfalls of Rent-To-Own.
While renting-to-own is quickly gaining in popularity as a unique way to finance a home, it is still often difficult to find properties in your desired area. For this reason, JustRentToOwn.com offers a powerful and dynamic search engine to give you the tools you need to find your dream home. RTO buying and selling is a unique market opportunity that requires research and intuition to find the best deal. Profiling skills are essential in determining who is ready to offer a Rent-To-Own home ownership arrangement. We connect you with people who are actively interested in selling their properties quickly to qualified individuals, taking a lot of the leg work out of the process. Once you establish contact with the seller, be sure to ask why they are selling and how long the home has been on the market. Understanding the circumstances of a seller can mean almost everything in getting the deal that is perfect for your wants and needs. We connect you to the seller, but from there the process in your hands.