Advice For Those Who Want To Buy The Home They're Renting

Bankrate has some advice for those of you who want to buy the home you are currently renting.

With the market in shambles, renters have some leverage in the negotiations.

A rent-to-own arrangement, also referred to as “lease-purchase” or “lease-to-own” deal, is generally a binding agreement for a renter to buy at the end of a set period. In a seller’s market it’s harder to get landlords to agree to lease-options. But in many respects, the timing seems right for your parents to talk with the owner about structuring an option arrangement.

Rent-to-own arrangements are generally structured so the renter/buyer agrees to pay above-market rent (20 percent and up) over a period ranging from one to three years in order to accumulate the equivalent of a down payment. Thus, if your parents are paying $1,200 per month in rent, they may be asked to boost that to $1,500 per month for say, a 30-month period, thus accumulating a $9,000 “down payment” in that period. Typically, the buyout price at the end of these deals is at least 110 percent of the price the owner originally plunked down for the house.

An advantage of rent to own is that lenders generally require little or no additional down payment and will assume a mortgage that people like your parents may not have been able to get on their own, particularly if they suffered past credit problems. (By the way, your mom and dad will probably be expected to handle maintenance and upkeep on the house during this rent phase.) Make sure you or your folks get a few “comps,” or comparative prices of homes that recently sold in their neighborhood, to give them a foundation for their offer. Realtor offices are pretty good about releasing some of these because they’re hoping to get your business.

Might be something to think about for those of you who are renting but really like the place you’re in and want it to be all yours.

Lease-option best for rent to own [Bankrate]
(Photo:stirwise)

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  1. Juncti says:

    This seems like a horrific deal.

    First you pay extra on top of your rent for the down payment for 30 months, but during that time period you give up the benefit of renting by assuming all maintence costs.

    Then you buy the house at the end for 110% of what the buyer paid if not more. The market is declining not increasing. So you’ll likely be paying above market for the house.

    This is a dream deal for a landlord. Get rent for 3 more years and not have to pay any maintenance on a house you still technically own. Then when you sit down years later to sell the house you get above market value, minus the $9000 you are already holding as deposit, for the house.

    No thanks.

  2. randombob says:

    Yeah, I too am trying to figure out how there’s any benefit to the renter in this scenario.

  3. TPK says:

    I always wondered how this worked… Seems like it wouldn’t for most folks.

  4. anatak says:

    @Juncti: Yes, these deals are great for the landlord as the renter usually bails before the term is up, leaving them with setting pretty ready to do it all over again. From the renter/buyer’s standpoint, its just more ‘creative financing’ designed to get them into something that they cannot afford or would not qualify for (which should be the same thing).

    Want to buy the home you are currently renting? Slow down. Save up a down payment, spend some time being, ya know, a responsible adult, get prequalified and then go make an offer. Otherwise – suck it up. Its a house. They made more of them. You’ll find something better.

  5. milqtost says:

    There are advantages to this for both sides as long as both sides understand and agree to everything in advance. The owner gets additional income off a property (the rent) while the buyer gets to build a down payment (the lease payment option). I am actually doing this exact scenario for some folks now, and there is no loan in the world where they would be paying $400 a month towards their principal right from the start. Now prices are sliding a bit but I’m willing to work with them on the price – especially because I have been getting rent to help my bottom line. A lot of landlords wouldn’t, which is why you have to pay attention to what you are doing. And @Juncti – if you are renting but paying all the maintenance then the contract was bad and you got screwed from the start. Walk away from it NOW.

  6. savvy9999 says:

    The buyer should pay a couple hundred $ to have a RE lawyer look at the final contract and due a diligent clean-title search, but one would think the rest of the ticky-tacky fees that rack up during a house sale could be avoided.

    It would depend upon the knowledge and experience of the renter whether or not they wanted to get it professionally inspected. It might be a contingency for getting a bank loan for the rest of the mortgage.

    No realtor commissions, no moving costs, this can definitely be a win-win.