Another reason that the number of rent to own homes will be shrinking in the near future is the fact that they give renters/buyers a big advantage in a rising real estate market. When you and the seller negotiate on the lease and option terms, you’ll agree on a set price to be paid for the home when the sale is completed. When the values of homes rise as they have recently, buyers often end up purchasing properties for prices far below the current market value.
“As home prices rise and more and more cities are priced out of conforming loan limits and pushed into jumbo loans, the problem shifts from consumers to the home finance industry,” says Scholtz. With strict automatic underwriting guidelines and 20% to 40% down-payment requirements, even financially capable people can have trouble obtaining financing in these markets.
Are you serious? NO ONE in their right mind would sell their home under the terms you describe. I have NEVER seen an article on a RTO anywhere on the internet so misinformed as yours. Just ask yourself, would YOU agree to lock in a price – negotiated at todays market – to sell your home 3 years in the future for a measly 1% of the purchase price as your only incentive?!?!? $2,000 to sell your $200k home with no further financial penalty to the buyer if he changes his mind? Locking in a price based on todays market to an unqualified buyer and a fixed rent amount would be insane for the seller. No owner with half a brain would agree to this. An option fee of at LEAST 3% (non-refundable) and a rent premium of at least 20% would be the MINIMUM any savvy seller would/should accept. Why is paying a rent premium a “horror story”? ALL the rent premiums and option fee are applied to the purchase price when the buyer exercises his option, a “forced savings” for the buyer if you will. Gives the buyer incentive to complete the deal and the seller incentive to lock in a fixed price/rent. If you have a house you would sell to me under the terms you describe, sign me up. What have I got to lose? I could negotiate a price based on todays market, live in your house at market rents with none of the ownership responsibilities, watch my equity grow with my only risk being 1% of the value we agreed on. I wouldn’t even exercise the option. I would just sell the option and collect the equity you put up all the risk for and traded away for chump change. This article is ridiculous. Please remove it, or at least correct it as you are misinforming buyers what they should reasonably expect in a RTO.
It’s important to note that there are different types of rent-to-own contracts, with some being more consumer friendly and flexible than others. Lease-option contracts give you the right – but not the obligation – to buy the home when the lease expires. If you decide not to buy the property at the end of the lease, the option simply expires, and you can walk away without any obligation to continue paying rent or to buy.
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