Rent to Own Options on the Rise

interest rates remain low Finding homes that can be rented with an option to buy are under going a re-birth as the nation’s real estate markets realize an extended slump in the majority of housing markets. The Rent-to-Own purchase is making a big come back.

Gone are the days of booming real estate markets experiencing double digit inflation. Gone too are the days of easily obtainable home mortgages, pushing many homeowners to settle for a renter at least at first, who just may save up enough cash to eventually buy their property.

Rent-to-own options were nearly inexistence during the nation’s real estate frenzy, falling out of favor with homeowners who just wanted to sell their properties to obtain immediate cash. But a tighter lending market coupled with slower home sales has sent many owners to do whatever they have to do in order to eventually sell their homes.

A survey of the top dozen housing markets in the nation shows further evidence of change. There has also been an increase in owner financing offered by home owners. In the past year a sampling of new home listings on the market shows that owner financing has increased to nearly 11%.

Homeowners are beginning to see the upside of the Rent-to-Own scenario. They are able to fill the home with a paying tenant, and obtain some form of option consideration, which usually equates to any where from a few hundred dollars in option money to as much as 5% given higher priced real estate.

As a result of slower housing sales and a rising inventory of homes listed for sale on the market, owners are able to keep making mortgage payments in most cases with the tenants rent, and hold on to the home instead of possibly facing foreclosure. In all but a handful of markets around the country, rental rates are sliding as the inventory of rentals increases.

In Miami, Florida John Sage is happy to be renting a swank two bedroom high rise condo just outside of south beach for $1,000 a month with a Rent-to-Own option. Sage paid the owner only $2,000 for the option at the time he and his wife moved in three months ago.

“I have some credit issues to take care of before we finally buy again,” said Sages. “We got behind on a couple of credit cards when I lost my job.” The computer programmer figures it’ll take him and his wife around 12 to 15 months to straighten out their credit before they’re able to buy the condo for a price they expect to agree with the owner on in another year.

Many Rent-to-Own contracts specify a sales price, but in Sages case the owner has agreed to accept the appraised value of the property at the time the Sages are able to make the purchase up to three years from the time they originally moved into the property. The owner purchased the condo for slightly more than $385,000 two years ago and has seen its value slip to slightly more than half.

During the height of the U.S. Savings and Loan fraud scandal seller financing became commonplace, especially for secondary financing. A surge in second mortgages are beginning to materialize, but lenders are carefully scrutinizing loan files since the second round of the S&L Crisis was triggered by owner held second mortgages that were not revealed to mortgage companies and banks.

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