Just a few years ago, you hardly ever heard the term “rent to own in Laguna Hills,” where homeowners had multiple bids from which to choose. But now, it’s a different ballgame. Homeowners may be more willing to work out rent-to-own agreements, even with people who would be turned down for home loans.
A rent-to-own contract requires prospective buyers to pay monthly rent to the homeowner, with a portion of it going toward a home purchase at a later date. This contract usually lasts one to two years at which time both parties start the standard home purchase.
For wishful homebuyers with checkered credit histories, it’s a home buying option worth considering. You may be unable to qualify for a loan right now, but there are sellers who may be willing to consider renting to you with an option to purchase later.
Pros and cons for both parties
Besides having time to build up a down payment and good credit record, renters have the advantage of “trying out” the house and neighborhood, said Arzaga. “You can also lock in the sales price and terms upfront, allowing you to purchase the house at a below-market price in a few years,” he says.
Not all the money you pay in rent will go toward the down payment. Mortgage lenders are the ones who decide how much of your rent payments are credited toward the down payment and closing costs.
For example, the house could be rented by its owner for a standard rent of $2,750. But when negotiating the rent-to-own contract, you and the homeowner can agree that you will pay $3,750 a month, with $1,000 as your homebuying credit. At the end of a two-year lease, you’ll have $24,000 set aside. That money is returned to you at the time of settlement and can be used for your earnest-money deposit, down payment or closing costs.
This is why I don’t recommend the process. If you decide not to buy the house at the end of the lease, you probably won’t get a refund. That money is usually only returned to you when you buy the property!
For sellers, the advantages are having an eager buyer and a long-term renter who will care for the house more than the standard tenant. However, there’s a risk of the renter opting out of buying your house at lease’s end.
Also, typically the purchase price is negotiate up front , and the Seller will usually tack on an additional 10% above market up charge for a price one to two years in the future. The Seller is not going to do you a favor, they are only helping you to make more money at the end. This transaction gives the buyer (the advantage) to lock in the price in advance, but if the home value goes down, you’re out the extra money paid toward the down payment.
If you’re seriously thinking about going through this process you must contact a Laguna Hills Real Estate Broker, before you lock yourself into something that’s a scam.