Profile picture for DorothyBarr

looking for a rent option to buy

I am currrently on ssd and my good friend she is on it as well . we are very un happy here in Hemet paying someone else  mtg pm . would like to find a good location with a rent to but option . I f you hear of anything pls call asap . Dorothy Barr
  • March 04 2014 - Allied Gardens
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Answers (7)

Best Answer

Hi Dorothy,

Rent to own, known as a lease option, is a technique investors use to make money. You pay higher up front, about 5% of the purchase price, plus extra rent each month. The regular rent goes to the owner, but the additional payments are used to buy down the price of the home. If you end up not being able to qualify for a loan from a lender at the end of your option period, you don't get any of that money back. The investor will try to get you to take the shortest option period possible, maybe one year, banking on the fact that you won't be able to exercise your option by the end of it. Most renters end up not being able to qualify for a loan, which is why investors do it.

For example, if you buy a $275,000 home and a $7,500 up-front fee, then pay a rent premium of $500 a month on top of their $1,600 market rent, you'll have $13,500 saved after one year and $25,500 after three. But, if you just did that on your own, you'd have the same amount with interest.

That would be great since prices are rising, but investors are fully aware that prices are rising, so your option period will be short.

One disadvantage is, if you can't qualify by the end of your option period, usually 12-24 months, you paid all of that for nothing. You may be able to get a contingency worked into a contract for the return of the extra rent and up-front payment in a buyer's market, but we're in a seller's market. Another is the owner who negotiates a lease option, but doesn't tell you he's in foreclosure, and the home is repossessed without your knowledge, a scenario far more likely in this market.

Have you spoken to any lenders yet to see what you need to qualify? When you have this information in hand, you'll know if you can swing a house with the rent applied to the loan. But, it'll only make sense if you can get a long option period, AND you know you'll be able to qualify at the end of it. But, if you can save 3%, 3.5%, or better, 5% for a down payment by the end of the option period and still get a similar house, you won't need to do a lease option, and you'll have many more houses to choose from.

So, do two things:
1. Talk to a lender or two (I can send you some that I trust to talk to)
2. Do a search on lease options, and you'll find a lot of information on this investment technique, because that's what it is.

Good question, and good luck! Call or email anytime with questions.

Warm Regards,

Cory La Scala, REALTOR
Independence Realty
Lic # 01443391
  • March 04 2014
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A lease option does not have to be all in the the favor of the seller / investor. A lot of sellers don't want to manage a rental property and will give the renter / buyer a fair shake. The terms of a lease option are what the 2 parties agree to.
  • March 16 2014
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Profile picture for SDREVets
Hi Dorothy,

I'm starting to change my opinion on rent/options, I used to agree with Cory, but the real estate market is changing and I'm starting to see a few honest lease-option deals start to pop up here and there. You absolutely need to hire an agent to represent you exclusively and that agent needs to have recent experience in these types of deals. To be honest, that is not me. I do know an agent that works these types of deals and I would be happy to send you their number. 

J.R. Thrasher

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  • March 07 2014
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Just be very careful. Make sure you completely understand the entire transaction and how your funds will be handled. Proceed with caution. It does work for some, but not all. I would suggest possibly working with a lender to find out what you need to do to prepare to purchase your home. Feel free to contact me if you would like me to put you in touch with a lender than could possibly give you some guidance.
  • March 04 2014
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I agree with Wetdawgs. I would be happy to work with you to put you on a plan to home ownership, but for the reasons, outlined below, rent to own is not usually the best option. Contact me directly and we can get started.

Thanks!
Sinead McAllister
  • March 04 2014
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Profile picture for wetdawgs
Rent to own or rent with the option to buy is a great way to lose a lot of money.     The only time I think it is reasonable is when the potential buyer has a lot of money but a temporary glitch in their credit score so they can't qualify for a mortgage.

Plan on a large non-refundable down payment.
Plan on monthly rent being larger than fair market rent.
Plan on losing all your money and moving if you can't qualify for a mortgage at the agreed upon time and price.
Plan on the choices being slim to none.

Therefore, if you are dreaming of home ownership, identify the steps you need to be able to qualify to buy.   Are the savings for  down  payment standing in your way?   Some communities have down payment grants.   Are your credit scores an issue?   If so, develop an action plan to improve your scores.       You'll have much more choice and much less risk going it the traditional route.

Good luck!
  • March 04 2014
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Profile picture for RizaB
  • RizaBZillow
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Hi DorothyBar -

Currently, Zillow does not have yet the option to list a "rent to own" homes. However, there are some rentals that has the option to sell their homes. You can click this link or you to have a  guide in searching for some rentals in your preferred area.

For more information about our website you can visit Zillow Help Center.

Thank you.

Riza B.
Zillow Customer Support
  • March 04 2014
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