What You Need to Know About Rent to Own Condos
Why People Choose the Rent-to-Own Option
The two most common reasons that people choose the rent-to-own option are:
- They have poor credit
- They don’t have the finances for a mortgage now, but will likely have it in the near future.
It’s important to remember that usually you have to be able to qualify for a traditional mortgage within a few years of moving in. If you don’t have the ability to put down the mortgage, you may lose all of the extra money you’ve been putting in.
How do Rent-to-Own Condo Arrangements Work?
All of the rent-to-own condo agreements are going to be different, each state will have its own requirements and regulations. However, a typical rental-purchase agreement will involve the renter/buyer having the option to purchase the property after a set period of time. This time period is, on average, 3 to 4 years. This will be achieved by an option payment, which is typically a one-time payment to the seller offering the buyer the option to purchase the condo at the end of the period. On average the option price is typically 3% of the total purchase price. Usually the option price will be 2.5% to 7%, which is substantially less than the 20% down payment of most mortgages.
How do Rental Payments Work for Rent-to-Own Condos?
The renter/buyer agrees to pay the full amount of rent during the lease, but a percentage of the rent will be applied towards the purchase price. This percentage, which is on average 25% of the rent, will become the rent credit.
When are Rent-to-Own Condos a Good Idea?
Rent-to-own condos are a great option for those who are recovering from bad credit or for those who aren’t ready to make the down payment on a mortgage. Rental-purchase agreements give the potential homeowners a chance to build up a good credit history and some additional time to save money.