Cashing in on the continuing increase of property values is one of the main benefits of owning your own home. Home owners who only have a small equity investment in their homes can increase their equity as property values rise. Just imagine if you owned a $150,000 house with 5% down ($7500) and house values increased by just 3%. In one year you would have had an increase in equity of over $5,000
For many, the rent-to-own home may be the best option. Also called a lease-to-own house, the process works similarly to a car lease : Renters pay a certain amount each month to live in the house, and at the end of a set period — generally within three years — they have the option to buy the house. Each month of rent they pay is income for the seller, while a portion of it goes toward a down payment to eventually buy the home.
In most agreements the renters have to pay an option fee and then a rent premium. The option fee is a set amount that the renter pays the seller. If, at the end of the lease period, the renter buys the house, the option fee becomes part of the down payment. If the renter doesn’t buy the house, the option fee becomes income for the seller. Rent premiums are an amount slightly above the typical rent, with a portion of that money going toward a down payment.
The Rent to Own program is typcially set up as the model here explains; The average house is worth $300,000, and typical rent would be $1,500 a month. Someone who’s renting to own might pay $1,700 a month in rent and then receive a $200 rent credit each month. Add the option fee, in this case $5,000. On a three-year lease, the renter would earn $7,200 in rent credits. Adding the earned rental credits to the option fee, the renter has accumulated $12,200 for a down payment.
As a Rent to Own buyer you will still be required to have a deposit for the property, which is usually a percentage of the purchase price or a lump sum. The monthly payment for a rent-to-own agreement will depend on your budget. The larger your payments, and the longer you make them for, the larger the accumulated downpayment will be when you exercise your purchase option and get a mortgage in your own name.
After your Rent to Own agreement expires you will have improved your credit rating enough to obtain your own mortgage. The sum of your initial deposit and your monthly payments will count as a downpayment for your own mortgage. To know exactly how much of a downpayment you will need to consult with a mortgage broker to discuss getting the best possible rate.
Your local Orillia Real Estate agent can help you find a property that will fit your budget. Choosing a Professional agent with local knowledge and experience will greatly enhance your real estate shopping experience. Choose from our Best Orillia Real Estate Agents to ensure your receive the best possible advice when making your next property investment.