Tighter mortgage lending rules and rising house prices are squeezing more and more first-time buyers out of the property market. In the face of this, many property developers, builders and real estate agents are starting to believe rent-to-own schemes may be a win-win scenario for both buyers and sellers because it allows those who can’t qualify otherwise to secure down payment on a home of their own.
Under the current government lending rules, mortgages can only be provided to bankrupt persons three years after they’ve started rebuilding their credit. Self-employed individuals, meanwhile, need at least two years experience running their own business before getting approved. Rent-to-own programs are also meant for people who have slight problems that keeps them from qualifying for a mortgage and need time to build up a down payment.
The programs put a portion of the monthly rent towards the eventual purchase of a home, usually for about three years, at which point the renters can decide to buy and unlike leasing to own a car, homes generally appreciate in value over time. This means, theoretically, if the renter decides not to buy the property when the option date comes up, the owner can either keep the property and find a new rent-to-own customer or sell the property at fair market value. For the owner, there is very little risk. For the renter, he’s paid higher rents than he would have otherwise but does not have the chore and expense of selling his house he’s changed his mind about home ownership.
Rent to own is not something I get involved with. For the owner it seems pretty much risk free, and to the potential buyer maybe it is the best thing he can do to pull himself out of a bad credit situation, but personally I think with a little intestinal fortitude, he can bootstrap himself into true homeownership.
Notice I didn’t use the word scam anywhere in this post.