So what are credits and how do monthly rent payments work towards the purchase of my home?
To simply put it, credits are a portion of your rent that is saved and will be used as a portion of your down payment towards the purchase of the home you are currently in. Each month your rent money is working towards the purchase of your home. A portion of your rent payment will be credited towards your down payment without you even thinking about it. In other words, it is a force saving for you.
One of the creative ideas we did with our program was to create a choice for you to select the monthly payment you are comfortable with. Now just to be clear, when we say choice we do not mean you get to decide to pay $100 a month. What we mean is, it is based off what the current market rent is for that style of home in the location the property is located.
By providing you with a choice, you have the ability to save anywhere between $200 to $400 a month. In three short years, you will have saved close to $15,000 in credits for your down payment and that is not even including your initial down payment. Now compare this to rent. If you are in a traditional rental agreement, how much did your landlord save for you in the last three years? Probably nothing. So if you have been having a difficult time saving for a down payment and want to start down the road to home ownership, rent to own can help.
One of the questions we get asked quite regularly is, ‘where are the credits saved?’ The credits are not actually saved in a bank account but are clearly outlined in the agreement. It clearly outlines how much will be saved each month and the maximum amount you will receive at the end of the term. Now when you’re ready to purchase the property after you have restored your credit and you are at the required 5%, the total credits earned are subtracted from the price of the home.
Let’s say the home is valued at $275,000 and you’ve put down $5000 and you’ve been in the property for three years and have saved $14,400.
$275,000 – $5000 – $14,600 = $255,600 (your price)
Below is an example of the difference in rent to own and a straight rental.
Rent to Own
Down Payment (credit) $5,000 $0
Monthly Rent Payment $1,600 $1,500
Monthly Credits $400 $0
3 Year Total Payment $57,600 $54,000
Subtract Total Credits $14,400 $0
Total Payment – credits $43,200 $54,000
We always say if you can purchase your own home great!! If you can’t, rent to own is the second best option as opposed to just straight renting. At least you are getting something back each and every month that will be used towards the purchase of your home and being used towards an appreciating asset.
Since it is a rent to own, you can paint, put an extension on your deck and lots more but, we will get into all of that in later chapters.