Rent to Own Homes
Rent to Own Homes in NJ
With tougher lending restrictions of late, coupled with the rise of personal financial hardships for individuals and families, it can be difficult for motivated buyers to obtain a mortgage and buy a home in a traditional fashion. Fortunately, for these buyers, the ability to find a home to lease with an option to buy provides an alternative route to home ownership.
Potential “lease-to-own” buyer you can gain a fundamental understanding of the opportunities offered with a lease option or rent-to-own properties below.
What is Rent to Own Homes
People have used this strategy to buy real estate for many years. It tends to become more popular as lending restriction get tougher, as we can see in this current market. Lenders have returned to a much stricter loan approval process, and homes do not sell as quickly and easily as in recent past. For these and other reasons lease option or rent with an option to buy has grown in popularity. This is also because rent-to-own homes offer a classic win-win arrangement for both home buyers and sellers. It can offer home ownership solutions for buyers needing an affordable track to home ownership, while offering the sellers a healthy way to keep the property under careful tenant care until final sale.
Lease option or rent-to-own transactions are different from a traditional home sale. The buyer/renter enters into an agreement with the owner or landlord to buy the property by a set date in the future. Typically 3 to 5 years down the road.
Buying a home with a lease option includes these steps:
- Agreement of a purchase price: a home acquired in a Lease Option transaction, the buyer and seller agree on the home’s sale price and other terms.
- To lock out other buyers: The buyer will pay the seller a fee (the amount is negotiable) for the right to buy the home. This Option Fee prevents the seller from selling or offering the rent to own home to anyone else.
- Occupy the home as a tenant: The buyer then occupies the home as a renter and pays the seller monthly rent for an agreed length of time.
- Build credits toward down payment: A portion of the rent paid is applied to the purchase price, as a rent to own credit over time. For example, if the rent is $1,500 per month, and $250 of this is designated as a rent to own option credit, over a 36 month rental period, the buyer will accumulate $9,000 toward the purchase of the rent-to-own home.
In terms of the real estate transactions, the paperwork and agreement that are a part of this process typically breaks down into three parts
- The Rental agreement which outlines the terms of your tenancy while renting the property.
- The Option agreement to identify the time period and purchase option fee.
- The Contract of sale to spell out the purchase price and terms of sale.
Each one is an important part of the lease option to purchase agreement and should provide both the buyer and seller the protection needed to complete the transaction.
For the right buyer the lease option is a terrific way towards homeownership.