If you’re serious about the Lease To Own or Rent To Own way of becoming a home owner, you may have found some companies out there advertising very low down payments, or maybe even zero down.
I wanted to fill you in on why I refer to these as a “Rent To Fail”.
In every single reputable Rent To Own program, when the time comes for you to own the house, the single most critical part of the whole program is that you will be provided with a mortgage (that you can actually qualify for!).
The short version of the story is that you need to get a mortgage to own the home. If you can’t qualify for a mortgage, it slows down the process of you owning your own home.
So who do the banks give mortgages to? They like people with decent credit and that have shown they are serious about owning a home.
In other words, people that have something to lose if they don’t follow through with owning the home.
The number one way they count you as serious is by putting a bunch of money down – and this is where the down payment that the Lease To Own Company you’re working with will need from you to be accepted into their program comes into play.
Generally speaking, banks need a minimum of 5% of the homes value down to give you a mortgage. On a home worth $300,000 that works out to be $15,000.
In one of these ‘Lease to Fail’ models, you would need to put $1,250 aside, in addition to your lease payments, each month for a 12-month term. That’s a LOT of cash, and frankly is not reasonable for most people to handle. The monthly cost would be so high, if done correctly, that almost nobody could afford the home
But here’s where it gets even worse; Most of these companies will only put $200 or so aside each month for your down payment. On that same home, that means it will take 75 months for them to save up a down payment for you. That’s over six years!
A quality Lease To Own company should not only be different, but better. Not only should a huge credit each month be given to you towards your down payment (we sometimes credit as high as $1,000 per month!), but also, active help in repairing your credit should be offered (which is a mandatory program we run our tenants through), and a guarantee for the purchase price of the home for your entire term should be given as well.
It’s because of these differences that renters can be turned into owners in as little as 12 months with down payments as low as $5,000 (depending on the property, of course).
So when you’re looking for someone to help you become a home owner, make sure they’re actually going to help you and that the system is built for your success.