Why sell a home when you can rent?
There are actually quite a few reasons to the above. Maybe your potential client is trying to save enough money for a down payment. Or maybe they had some credit blemishes they have been clearing up, but need a little more time to get that credit score up. Maybe you have an investor you are trying to convert to a Seller.
Renting with the option to buy is a tool to be used when maybe a potential Buyer can't buy just yet for maybe some of the reasons above.
The primary benefit of RENTING WITH THE OPTION TO BUY is that the Renter can obtain down payment money after a year of renting from the Seller as a form of credit from the difference of his total rental payments from the "fair market" rent. As an example let's say your Renter pays $2000. monthly in rent and fair market rent is $1400. per month. The difference of $600. per month times 12 months equals $7200. This would be a 5% down payment on a conventional purchase price of approximately $145,000. or 3.5% on an FHA purchase of approximately $205,000.
From a mortgaging standpoint rent credit under an option to purchase is generally an acceptable form of down payment funds(as long as an "arm's length" transaction and not a "short sale".
The documentation required is 12 months of cancelled checks or money orders showing the full rental payments and a Rental/Purchase Agreement for at least a 12 month period showing all terms and the amount of monthly rent. When the Borrower begins the mortgage process the Appraiser will be required to comment as to the "fair market" rent to determine the difference to be credited. Depending on the transaction the Seller may also be able to contribute 3% towards closing costs.
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