What Is a Rent-to-Own Mortgage and How Does Someone Get One?
The mortgage industry is constantly changing because it always has to adapt to meet the ever-changing needs of consumers. One of the more recent mortgage products being made available is the rent-to-own mortgage. With this type of mortgage, an agreement is made between the landlord and their tenant. The agreement includes an option for the tenant to purchase the home they’re currently renting.
For many renters, this can be an attractive option, so it’s important for you to be able to provide your clients with accurate information about rent-to-own mortgages and how someone can obtain one.
The Basics of a Rent-to-Own Mortgage Agreement
The typical rent-to-own agreement consists of two documents – the lease agreement, and the option to purchase. The lease agreement is just like any other lease agreement, which details the provisions pertaining to the amount of rent the tenant will pay, the length of the lease, and the responsibilities of the tenant and landlord concerning repairs and maintenance of the property.
The document detailing the purchasing option includes the option to buy guarantee, the tenant’s right to buy the property within a defined period, and any fees associated with the purchase. In most cases, the rent on a rent-to-own property will be slightly higher than normal because a certain amount is applied to the purchase of the house. In the event the tenant opts not to buy the property, the landlord is not required to return the option-to-buy fee or to refund any portion of the rent that has thus far been paid.
How Is a Rent-to-Own Mortgage Obtained?
For a tenant to obtain a rent-to-own mortgage, they will need four things:
In order to get a rent-to-own mortgage, a tenant first needs to find a landlord who is willing to sell their property. The rent-to-own contract is created by the landlord/seller, but the final agreement shouldn’t be written up and signed until both parties agree on the terms and the contract is looked over by a real estate attorney.
The tenant continues to meet the terms of the lease agreement until they are ready to buy. At this time, they will need a mortgage lender to provide them with the mortgage they need to make the purchase.
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