Rent to own schemes
When applying for a mortgage, purchasers will need to have a good credit score with credit reference agencies (CRAs) in order to qualify. They will also need to have a significant sum of money in order to pay the deposit – 25% of the value of the property. Without these two things, purchasing in the traditional way may not be an option. However, there is an alternative – a rent to own agreement. With this contract, buyers agree to rent the property for a set amount of time (typically five years) before then exercising an option to purchase the property when the rental term expires.
The following explains how rent to own works and may be a good choice for someone who wants to buy their own home but isn’t immediately in a position to do so
The option fee is usually negotiable and usually ranges from 2.5% to 7% of the purchase price. With some contracts, part of the option money is applied to the purchase price on completion.
The contract should clearly specify maintenance and repair requirements – for example, cleaning out gutters, cutting the grass, removing weeds, which are all very different from, say, repairing or replacing a damaged or age expired roof.
Purchasing the property
If the buyer decided to exercise their option to purchase then they will typically apply for a mortgage and purchases the property from the seller at the previously agreed price. The contract may specify a reduction in the purchase price through deducting a part of the option fee and rent as previously agreed in the contract. The purchase of the house completes in the normal way and the tenant buyer becomes a homeowner.
The ideal tenant buyer
For rent to own to work, tenant buyers need to be confident that they’ll be in a position to make the purchase when the time comes at the expiration of the lease term. Otherwise, the option money paid up front and higher rent will have been for nothing.