Lease Options or Rent to Own?

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                          Lease Options or Rent to Own?

Finding a rent-to-own house is one of the many ways someone with bad or no credit can buy
a house. You will often find them called names like lease/options, lease with option to buy,
lease purchase, lease 2 purchase, rent with option to buy, rent to own, or rent to buy homes.

There are a few differences between rent-to-own and lease-option agreements, although many
people use the terms interchangeably. With a rent to own (or rent to buy) home, the buyer
makes an agreement with the owner that part or all of the rent money will go towards the down
payment of the home, and at a certain date, perhaps 2-5 years in the future, the renter will
purchase the home, using the money that was set aside as the down payment.

There is usually not much money put down in the beginning, outside of what would normally
be needed for a rental home, so this is a good way to get into a home for little or no down
payment.

Another advantage to a rent to buy situation is that if you compare how much rent money is
applied monthly to the home price, even if it is only 25-50%, it will still be much more money
paid on the principal of the house than if you had taken out a loan for it. If you look at how
much money goes to the principal payment of a home with a typical mortgage loan, you will
find that most of your mortgage payment in the beginning is just paying interest on the loan. A
rent to own agreement, where the money goes directly to the payment of the home, could be
saving you a lot of money in the long run.

With a lease-with-option-to-buy, a renter signs a lease agreement (often for a shorter period of
time, like1-2 years, but it could be longer). The renter/buyer usually pays a sum in cash,
usually non-refundable, to the owner in agreement to buy the house at a later date for the price
agreed upon. The renter has the option or right to buy the home, so in the end they have a
choice and can back out it they want. Some of the rent paid may or may not go towards the
purchase price of the home.

This is a technique often used by real estate investors in periods when the interest rate is
rising fast. This way they hope to buy the home at a lower interest rate on a later date. In the
meantime, they will sublease the home to someone else, who will make the payments for
them.

Again, the terms “lease option” and “rent to buy” are pretty much used interchangeably today,
so check with the owner to find out exactly what terms they are offering. Or approach an owner
with your own offer for renting to own.

If you are a renter who is tired of paying someone else’s mortgage and want to own your own
home, this is one of many ways that you can buy a home. One of the drawbacks is that you
will still need to purchase the home at a later date. This may be a problem if you have bad
credit, because you may still need to qualify for a loan when it is time to purchase the home. If
your credit can be repaired in several years, this may be a great way for you to get your home
now, and good motivation to clean up your credit for the future.



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