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How does Rent with Option to Buy work?
I live in Michigan, I am renting a home, looking for another rental home. How does Renting a house with Option to Buy it work?
Public Comments
- look into it with a good lawyer, people have been stung through this type of transaction, miss a months rent and your deal is null and void, thereby losing all previous payments,
- Some companies are doing it at such high rates that it makes it not worth it. I think it is better to deal with the home owner than with one of these companies. They seem to be more about the dollar than actually wanting to sell the home. This is how it works. Usually you pay an "option fee", this is like a down payment that would go towards the purchase price of the home once you obtain financing. However, if you don't end up buying the home in the end (whether it is because you couldn't get a mortgage loan or because you didn't like the house, etc.) you would lose your option fee. Often the owner will also charge a bit extra for the lease, this extra would work the same way. It would go towards the purchase price and lost if you don't end up buying the house. Why can these plans be beneficial for some people? It gives you time to prepare yourself for home-ownership. Most people that do these are trying to reestablish their credit scores. Giving yourself a year or two would not only give you that time to improve it, but you are also proving to a mortgage lender that you have been responsibily paying the rent (should be what the mortgage payment will be) on the house you will be purchasing. It is also an advantage to the buyer because you lock in the purchase rate at today's prices, even if the prices of homes goes up. The advantage to the seller is finding someone to purchase their home that will take care of it like a homeowner. Usually the contract states that the "buyer" will take care of any minor problems with the home. Plus, they aren't having to worry about making the mortgage payments while the house sits empty. Hope this helps! If you have any other questions, please let me know.
- First thing these days is to make sure if there is a mortgage that it is current, insist (through a written contract drawn by YOUR Atty) that you make the payments to the lender, if there is a mortgage. Make sure the taxes are current and see if you can also pay that directly. Hopefully you see where we are going here by telling you in the current environment you could get stung big time if you have to put a down payment on the rental agreement. On te sellers side I would not even do such a deal WITHOUT a large up front just to make sure the buyer were serious.
- part of the rent goes towards the down payment.
- I did not read all the responses, so I apologize if this is redundant. Be cautious on option properties. There are plenty of scams, companies and/or individuals on these because so many people have credit challenges but want a house. Typically, this is how it works. You rent the house while you work out your issues. At the end of the rental period, you have the option to purchase the house. The amount is USUALLY set when you enter the contract, but some want to set the price if you exercise the option to buy. Sometimes, a portion of your rent will be set aside for down payment if that is the problem you are having. Or, you rent while you resolve the credit issues. Or, you rent while you are establishing employment history. Whatever the case, the rental period is for you to get whatever issues you need cleared up taken care of. Once the rental period is over, you either buy or not. If you do not buy, there is typically some type of penalty. Not always. But again, please be cautious here. Some owners have you enter into impossible to satisfy contracts and you end up getting screwed. Companies will tease you that you can take over payments or RTO for just {insert amount here}, only to tell you later that you do not qualify or there are no homes available for you at this time. It is worth it before you sign to have an attorney review the contract for you.
