Rent to buy? Well, what does the term mean? This also known as lease option wherein if you do not have enough money on hands to purchase a property then you could pay a small amount as option money. Rent to buy is the best option for those who cannot afford down payment or not eligible for mortgage. With rising cost of living and mortgage interests most families can only dream of owning a house. Rent to buy can come in aid of these home worthy parties.
The term “lease option” is the technical description for a specific rental agreement allowing the occupant to rent a property for a particular duration of time with the added opportunity to buy it outright at the end of the lease period. Therefore, lease options are often called rent to buy.
How does rent to buy work?
In rent to buy schemes the house is purchased by the lease option provider on your behalf or in co-operation with other landlords. Then you would be allowed to move into that house as renter. At the end of the lease term you will be allowed to purchase the house. To exercise this right, you must pay some additional amount to the landlord; generally more that market rent. You may need to pay a deposit at the commencement of the rent to buy agreement. The amount could be as low as $5,000t. The remaining of the loan sum is divided and paid all through the loan period. Unless the debt is settled fully, the dwelling does not belong to you.
Rental fee
The rental fee that you pay in rent to buy is to some extent higher than what you would pay as a tenant. A component of this extra payment is taken for the option to buy besides the initial amount that you have paid. This entire option sum is cut down from the agreed purchase price if you finally decide to buy the property. This means, some amount of the rent that you pay goes towards building a mortgage deposit for the future. In case you don’t exercise the option, then the cost of increased rental payments is not returned. Nevertheless, it is much better than buying a property that has substantially decreased in value.
First time purchasers
Those purchasing a property for the first time may find this rent to buy more suitable as you would not be required to be eligible for a mortgage. Also it would provide you with ample time to get better your current financial position. Rent to buy is most preferred by people who have limited or poor credit history.
Since rent to buy is a key commitment, ensure that your future plans are integral before signing up the agreement.