“The two components to the deal are the ‘lease’ or occupancy companent and the ‘option’ component,” Bruce Smith of Centum Future Mortgage Group wrote in the latest issue of CMP. “We will explore the benefits of such an agreement, some of the key elements that make up a rent-to-own agreement and what pitfalls as mortgage brokers you should be trained to observe and prevent.”
Benefits of a Rent to Own
For the client
– Allows homeownership without the immediate need to qualify for a mortgage. A typical rent to own candidate lacks the income, credit or full down payment to qualify for a traditional home purchase. They simply rent the home until such time as they qualify for a mortgage. The investor may assist them in a savings program in order to accumulate the balance of the down payment. The mortgage broker assists with the credit repair. The client benefits from any appreciation in the home beyond the option price and settles into a preferred lifestyle sooner than expected. For existing homeowners, a R20 agreement may prevent loss of the home due to power of sale or failed refinancing attempts.
For the investor
– Attracts a better quality tenant during the rental process due to the pride of home ownership. The investor avoids the “nuisance call” from tenants for minor repairs where the client is obligated to repair and maintain the property. Allows the property to be pre-sold, without the need for additional real estate fees. Provides financial protection in the event the homeowner reneges on their responsibilities or fails to exercise the option agreement.
For the Realtor/existing homeowner
– Allows them to qualify more purchasers. Clients that can’t obtain financing today, may still represent a potential sale opportunity.
For the mortgage broker
– A mortgage for your investor and ultimately a mortgage for your client. Two mortgages on the same property, usually within a one to three year time period.
Smith also laid out the key elements of a rent to own deal – to read the rest of Smith’s article, check out the latest issue of CMP: Top 10 Commercial Brokers 2014
Rent to own properties benefit clients, investors and brokers, according to one leading player, who lays out the elements of a R2O strategy for those looking to add this lucrative business to their repertoire.