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Rent to Own Options
By Jeff Cornelius - January 22, 2021
Happy New Year and welcome to Invalesco’s first blog of 2021! The Denver metro residential real estate market was on fire for most of 2020, setting records for home prices (high) and days on market (low). 2021 promises more of the same and despite low interest rates, some people are finding it increasingly difficult to buy a home through conventional financing options.
We thought it was a great time to check in with Invalesco’s Rent to Own expert, Katrina Karchner. Below is a summary of a conversation we recently had to learn more about residential Rent to Own options. Enjoy!
Q: Who is a good candidate for Rent to Own programs?
KK: The self-employed who don’t have W2 wages, anyone working to improve their credit or trying to save for a down payment to purchase their own home are great candidates. In Denver right now, it can seem nearly impossible to save for a down payment or wait for 2 years' worth of tax returns for a self-employed person as you watch housing prices go higher and higher. Rent to Own options can help you secure a home now while improving your credit or putting in the necessary time for proof of income and then own the home as soon as you are ready.
Q: How do Rent to Own programs work?
KK: Rent to Own programs work very much like a traditional rental. First, you apply to find out how much you qualify for based on your current income, credit score, etc. Your qualified realtor would then show you homes that are currently for sale, as if you were going to buy immediately. Once you've chosen your home an offer is made to secure the home by your Rent to Own financial partner. You put down a deposit, usually 2 months’ rent, and then you can move into your home, normally about 45 days after your application is approved. Once you are able to qualify for a mortgage on the home, you are free to purchase that home at any time during your lease, which can go up to five years. Some programs even set aside a portion of your rent payment each month to help with saving for a down payment.
Q: What financial requirements do you need to qualify?
KK: Some of the qualifications are a minimum credit score of 550, $55,000+ per year in income, no open bankruptcies and a clean rental history.
Q: Can you buy any kind of home?
KK: Generally speaking, yes. You may buy brand new homes or any resale home less than 100 years old. Most Rent to Own programs require the home be move-in ready; no fixer-uppers. The partners want the residents to feel comfortable on day 1 and not need to replace carpet, appliances, and major home systems. Some programs allow purchases up to $615,000 in the Denver metro.
Q: Can you buy investment properties like duplexes and triplexes?
KK: No. This is for single-family, owner-occupied homes. Some condominiums also qualify.
Q: Do you end up paying more for the home than you normally would?
KK: You will pay more over the life of the loan to be part of a Rent to Own program versus buying directly. Some programs charge as little as 1% of the original purchase price of the home. In a market like Denver, if you wait for a year or more to save money for a down payment or repair your credit, you may find home prices having increased by 10% or more. In this case, you would be better off using a Rent to Own program now that locks in the purchase price, current low interest rates, paying the minimum 1% fee and assuming the mortgage when you are ready in a year or two- up to five years.
Q: How long does it take to close on a home?
KK: A minimum of 45 days.
Q: What if you don’t buy the home after the rental period?
KK: Based on the terms of your individual lease, you would get your deposit back and forfeit the right to purchase the home. You are not locked in if you choose not to buy later.
Q: What should someone look for in a Rent to Own program?
KK: You should look for a program with a high close rate on home purchases. That indicates you are choosing a financial partner whose priority is helping people become homeowners and they have numerous successful closes to back that up . Connecting with an agent that works with and has knowledge of various programs will allow you to have access to many paths to successful home ownership. These agents will be a trusted partner from helping you choose the best program to apply for to helping you find and secure the right home for your family.
Q: Anything else we should know about Rent 2 Own?
KK: Renting to Own your home is a great opportunity to take advantage of the current low interest rates, lock in a home price and work to make improvements to your credit, savings, income history, etc. All while living in your dream home, growing home equity and giving your family the stability of their very own home. It's a fantastic option for a lot of people.