Renting to Own is an easy option for someone wanting to own their home without the requirements that most banks need at the time. In my last blog, I gave details on how the whole process works, but now I want to break down the reasoning behind the down payment and why it is important.
The down payment separates renting to own your home from just plain renting a house. Renting, well, you know what happens with that. Pay your landlord monthly rent that helps pay THEIR mortgage for as long as THEY want you there. Remember, the landlord that you are renting from can give you 30-60 days to leave the property and you will basically be homeless. The end result with Renting to Own is having your house! During the ownership process, you can make some renovations to the house to make it exactly how you like it.
To begin the process, a small down payment with first and last month’s rent is required. I know you must be saying “Small? How much is small?” A minimum of $6-10K. Now you may be saying “That isn’t small” ok, let’s look at what a bank would need right now.
Let’s say you found a house worth $300k, you would need at least a 5% down payment plus closing costs, which is approximately $20K. But do banks only take a 5% down payment anymore? IF they do, you must have perfect credit, a 10+ year job, and the down payment RIGHT NOW. Things you may not have to qualify for the mortgage at the time. The down payment that is given for the rent to own process is kept and used towards the down payment that is needed to get a mortgage from the bank in the future. So the $6-10K down payment is looking way better! The down payment and rent credits ($200 per month) will work towards the down payment, helping you save the money that is required by the bank. Less money for the same result – home ownership, but you can be in your home before you need the bank mortgage!
The down payment is required to get into a rent to own property. This is to ensure that you will be close to the down payment that you will need at the end of the term to get a mortgage. The terms are from 1, 2, or 3 years, and the down payment is saved and used towards what the bank requires for the mortgage. The rent is charged at a premium meaning, if rent is $1500 in the area, you would be looking at $1600-1800. Part of the rent – $200 in rent credits, will be used towards the down payment at the end. So each month, money is being put away from your rent and saved to go towards the down payment of your house. After 3 years, the down payment will be much higher and you will be able to secure more than enough for a mortgage. But at least you will be living in your home while all of this occurs! Instead of waiting another 3 years to save all this money on your own, you can be in your home, save the money to eventually purchase your house in 3 years and do it without knowing it!
The down payment is for your benefit and it will work out in the end. The end result is a home of your own!