Strebor Properties & Investments
Rent To Own Program
Advantages for Rent to Own Buyers
Minimum Out-of-Pocket Cash Needed
Instead of a down payment, which is typically 20% of the home’s purchase price and paid to the mortgage lender, the buyer pays a one-time option-to-buy fee, which is typically just 3% to 5% of the purchase price and paid to the seller.
Locked-in Purchase Price
In a Rent to Own agreement, you are locking in an agreed purchase price. If the property value appreciates during your lease, the seller must sell the property to you at the agreed price. This could be a big discount in growing markets.
Start Building Equity Immediately
One of the major benefits of a Rent to Own is the possibility of building equity without having to put down a sizeable down payment or having credit to qualify for a home loan.
If the home value appreciates from your agreed purchase price, you have immediate equity when you purchase the home. For example, if your purchase price is $180,000 today and the home is appraised at $200,000 in two years when you exercise your option to buy, you have $20,000 of built-up equity. And that’s on top of your upfront option fee and the rent credit you’ve accumulated that go toward your purchase price.
Rent Money Is Working Toward Purchase
Every month, a portion of your rental payment (typically $100 to $500) is credited toward your down payment, purchase price or closing costs.
Delayed Closing Costs
On a $200,000 home, your closing costs as a buyer will typically be between $4,000 and $7,000. These costs are incurred when you actually purchase the home. So in a Rent to Own deal, you will have more time to save to cover all of these fees.
Time to Improve Credit Rating and Qualify for a Lower Interest Rate
The higher your credit score, the lower your interest rate may be. That’s because a borrower with a very high credit score is less of a risk for a lender. If by waiting to purchase you can improve your credit from fair to good or good to excellent, you could save thousands, even hundreds of thousands, of dollars over the life of a 30-year mortgage by qualifying for a lower interest rate.
Qualification Much Easier (Credit Problems Are Often Okay)
Mortgage lenders have strict guidelines to determine whether you qualify for a loan, including:
- your credit score,
- the size of your down payment,
- a debt-to-income ratio of no more than 36% (which means that what you owe on your credit cards, car payments, student loans and mortgage total only around a third of your income), and
- employment longevity at the same company.
But in a Rent to Own transaction, you will be approved at the sole discretion of the owner/seller of the property.
No Property Taxes
Since you do not own the home (yet), you will not have to pay property taxes while you’re leasing the home.
Quick Move-in Time
You can typically take possession of the home in a week or two, instead of conventional move-in times of one to three months after your offer is accepted. That’s in large part because your approval will be decided by the owner/seller instead of a lender who often takes 45 to 60 days to approve and process your loan.
Opportunity to Avoid Paying PMI
Private mortgage insurance (PMI) is a special type of insurance policy that is paid by the borrower and protects lenders against loss if a borrower defaults. PMI is required by most lenders when you make a down payment of less than 20%.
The premium typically costs 1% of your loan balance per year. And once you’ve committed to paying PMI, you’ll usually have to keep paying it for at least two years. On a $200,000 mortgage, PMI will cost you $2,000 a year on top of your mortgage payment, insurance and taxes. Because a Rent to Own agreement gives you extra time to save for your down payment, you may be able to skip paying PMI altogether.
-Strebor Properties & Investments L.L.C.