A “rent to own” or lease to purchase” option is an arrangement in which a buyer and a seller agree to sell a home a certain price within a certain amount of time.  It can be a good or a bad thing.

Savvy investors did this when real estate prices were ascending in order to capture future appreciation while not actually having to buy the house today and in order to shield them from a possible decline in the house. I imagine that most people reading this blog are considering lease to purchase because of two major things- bad credit and no down payment. For simplicity sake we will focus on the options these people have.

If you are someone that wants to take advantage of depressed home prices or just are tired of renting and want to start building equity, CONGRADULATIONS on taking the first step! I feel you are making a wise move, but when considering lease to own, make sure you are aware of these things.

1. Many times in lease to own situations you have to put money down and pay higher than average rent payments, the would-be seller uses the extra money to build up a down payment for you. This is OK- as long as you can qualify for a loan by the time your lease is up. This is big… If you don’t have a locked down game plan to increase your credit in an ever tightening credit market- you are just throwing your increase rent money and “down payment” out the window! The reality is most people can not improve their credit in 2 years time by themselves. If your score is below 550 I would seriously consider getting help increasing your score through a reputable credit repair company that has been doing business for a while and has a clean better business bureau track record.  In fact don’t be surprised if the land lord uses some of your added rent to pay for you to get into one of these programs. One of our companies, www.franklin-finance.com has been assisting 1000’s of people for decades and has a clean BBB track record. Their service also comes with a warranty so there is no risk to you.

2.  Make sure that the potential future price of the house is going to be in line with the appraised value or that a further decline in home prices will not result in you losing your down payment.  Most, but not all, of the land lords with these lease to purchase contracts want to sell you the house to make added commissions and capital gains but some are content to just take your down payments and increase rent.

3.  Some people say you can use the time in your home to make sure it is of sound structure, convenient for your day-to-day travels and just an overall good fit. To me this seems odd. Take your time and find a house that is a good fit for you first- not after, committing to the lease contract is a significant thing, I would not do so unless you are almost positive you can execute the purchase of the home in the end.

If it seems like to big of a step now, consider working on getting your credit back on track through a reputable company and saving up some money for a down payment. That way you can fore-go the whole lease process and buy ANY house you want, not just the ones in which someone is offer a lease to purchase contract.

All and all I would congratulate you on taking steps to becoming an owner, not a renter. Renting is fine if you are doing it for less than owning a home AND investing the difference in some asset (other than your home) that will give you something to show for your monthly payments. The sad fact is that for too many of us, the equity in our home is the majority of the money that gets put aside for retirement and is all we leave to our loved ones.

WANT TO LEARN HOW TO GET YOUR CREDIT BACK ON TRACK SPECIFICALLY FOR HOME LOAN APPROVAL? CLICK HERE

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