RENT TO OWN OPTION Regaining Popularity!
HOME BUYING STRATEGY LAST POPULAR DURING DOUBLE-DIGIT INTEREST RATES OF EARLY 1980'S MAKING A COMEBACK!
For those with a small down payment, home buying in today's Real Estate Market is often tough. FHA Guaranteed Loans offer buyers a financing option with as little as 2% down, but some home buyers haven't even saved that much toward their new home.
Enter, as a purchase option, "Rent to Own."
Here, buyers without a significant down payment may negotiate a Rent to Own Option. They sign a term lease initially, with a portion of the monthly rent eventually going toward the down payment.
Or, they may sign a straight Lease Option, the buyer buyer retains a Right of First Refusal, after the lease term, to purchase the home.
Both options usually involve an eventual purchase price negotiated up front, and a requirement that all rent must be paid current in order for the tenant turned prospective borrower to exercise his option to buy.
In our experience with "Rent to Own" Options here in Chicago, every negotiated purchase is custom-drawn, usually with attorney involvement. Possible risks can include the buyer not qualifying for the loan at the end of the lease term, and having to relinquish the property.
A change in the real estate market during the lease term could impact the market value of the property when the lease ends. If the market changes significantly, the original negotiated price could be too high, or too low, affecting one party or the other.
Also, current home buyers in default need be concerned about scam artists offering to buy their home, then offering an immediate lease-back option. In some cases, these are shady deals, with contracts allowing the new owner to withdraw the option to buy back for even the slightest lease infraction or late rent payment.
Further, unless the seller-turned-renters personal financial situation changes dramatically during the lease term, the likelihood that they would be able to get their property back by acquiring the needed financing would be low.
Within the last year, one company in the Chicago Suburb of Aurora IL, has begun to capitalize on rent-to-own interest. Home Buyers Realty Corporation has acquired distressed or foreclosed properties, renovates the homes, and offers them to buyers with a short-term Lease Purchase Option.
Again, the chances for specific tenants to actually buy the home at lease term end would depend on their financial credentials and credit score, as well as the unpredictable financing market. It is possible here as well the buyer would not be able to finance the purchase, and would have to walk away.
The Lease Option or Lease-to-Purchase Option will likely to continue to be popular as long as low-down-payment mortgage funding is difficult to obtain for many buyers. Of course, should the lending climate change, and more attractive options become available for high-leverage home buyers, those choosing Rent-To-Own will dwindle.
See Mary Ellen Podmolik's article in the November 28th Chicago Tribune for more info.
DEAN MOSS & DEAN'S TEAM CHICAGO
