Rent to Own! Is This a Good Choice for Renters?

Real Estate Agent with At Home Realty

This is such a good article especially in the market that we have today.  Especially if you have seller's who have some equity and can still buy or make their move without selling right now.  Real Estate is changing every day.  

Original content by Jerry Newman TREC #0492321

Rent to Own! Is This a Good Choice for Renters?
With the higher standards and qualifications for applying for a loan to purchase a home in today’s market, many would be buyers are looking into the rental market for the time being. Some of them are even considering “Rent to Own” option, but is this really a Good Choice for Renters? Many investors and private home owners from time to time will offer “Rent to Own Contracts”, which typically include an up-front fee, plus monthly payments that have two components, rent and additional charges that count toward a down payment.

Rent To OwnThis upfront money is often called “Non-Refundable Earnest Money”, or “Option Fees”. A good example would be if you agree to buy a $185,000 home, paying $3,000 up front money, and monthly payments of $1,500($400 of which goes toward the sale price of the home). At the end of one year, you will have $7,800 towards a down payment, and $17,400 after three years. $400 x 12 = $4,800 + $3,000 non-refundable earnest money.

But, if you decide not to proceed with the purchase for what ever reasons, it is unlikely that any of your beyond the rent payments will be refunded. For this reason, buyers should only consider a “Rent to Own” option only if they are serious about purchasing a home, but need more time to arrange for financing, or have other legitimate reservations. If you decide you don’t like the home after a year or two, all your payments toward the sale of the home is forfeited.

Rent to Own contracts may be a good choice if:

1. A buyer wants to take advantage of an attractive selling price, but just needs a little more time to save up their money for the down payment.

2. The buyer may need more time to improve their credit history and to qualify for a better mortgage interest rate on a loan.

3. The buyers wants to make certain that the house has no serious problems, or wants to experience living in a neighborhood before becoming a home owner. Then, if the buyer decides not to proceed, they may forfeit the money credited to purchase the home.  But, these losses could be small compared to the potential cost of multiple real estate transactions or property repairs in order to resell the house, and find a different home.

In any case, buyers should plan very carefully and make every attempt to ensure they can complete a purchase transaction at the conclusion of the contract. It’s also essential to work with a qualified real estate attorney to make sure the contract terms are favorable to your needs and the seller is a legitimate owner. In the state of Texas, it is highly recommended that use utilize the services of an attorney to help you with any “Rent to Own” or even those “Lease Purchase Contracts”.

Some of the Short Comings of a Rent to Own to Deal are:

Short Comings of Rent to Own1.  Interest rates may increase. If the rates rise, higher monthly payments could make it harder to secure financing at the conclusion of the rent-to-own contract.

2. Prices Changes. If market prices decline, will the buyer be stuck paying a premium price for the home? Conversely, if prices rise, does your contract provide protection from the seller seeking a different buyer?

3. Late payments. Some contracts say that if your payments aren’t received on time, they don’t count towards the down payment.

4. Foreclosure scams. Make sure the seller isn’t going through foreclosure. You don’t want to make inflated payments. only to be served eviction papers when the bank takes possession of the property.

Rent to Own contracts are not for every buyer. But in some cases, it can be an attractive option. If you think “Rent to Own” may be the right choice for you, Contact your Local San Antonio Real Estate Agent, who can answer your questions, and help you find suitable properties, and direct you towards an attorney for legal counseling on these types of contracts. Visit my website at Homes For Sale in San Antonio.

Jerry Newman, REALTOR®                                             
US Army Retired                                                         
Keller Williams Realty                                                                           
San Antonio, Texas
Direct - (210-789-4216
Fax Line (210) 696-9981

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Comments (3)

Jerry Newman
Brown Realty, 210-789-4216, - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

Hi Susan, Thanks for the re-blog. This may be a good option for some buyers, who need to work on their credit first, but they do need to proceed with caution, and seek the aide of a Good knowledgeable real estate agent, and even an attorney.

Mar 04, 2012 07:32 AM
Kathy Stoltman
Balboa Real Estate - Ventura, CA
Ventura County Real Estate Consultant 805-746-1793

I have not ever done one, they are not prevalent in our area, I do get asked about them every now and then.  If they become more common place, I would have to get more educated on the subject.

Mar 04, 2012 08:24 AM
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Unless I am confused, (which happens more than occasionally, these days) I think there may be some confusion here between "rent to own"... which in my opinion IS a the same as a purchase agreement with a long escrow period, and a very long occupancy and rental clause before actually closing on the home... and a "rent with option to purchase"... which is simply renting or leasing a home, and at the end of the lease... with the renter having the option to purchase or not.  In my experience, they are different.

Also... it is also my understanding that in Texas... the Texas Real Estate Commission... TREC... does NOT have any "promulgated forms" to use for a "rent to own", sometimes called a lease/purchase.  Which means that we, as Realtors, are not allowed to do this... at least not in Texas.  I also know that while this is the case in Texas... there are other states that DO allow Realtors to do this... so I am not speaking about any state but Texas.

If we in Texas attempt it, we are attempting to practice law... which, as we know is a major no-no.

We are told, or at least everyone I know has been told that once we have a seller and a renter agreeing in principle... we are to have an attorney draw up ALL of the attendant paperwork.

Mar 04, 2012 10:22 PM