Current US real estate market: Rent-to-buy option

It can be said that the present US real estate market is stagnant. This is due to the reason that the buyers are not able to afford the price of buying real estates and they’re also not able to get a financer. Therefore, the sellers are also not getting potential buyers who can afford the home price. As a result, the real estate sellers are offering rent-to-buy option, which is also referred to as lease-to-purchase option.

What is rent-to-buy option?

There are certain US real estate sellers who are offering properties at lease for a certain time period. If buyers opt for this rent-to-buy or lease-to-purchase option, then in most cases, they need to pay 5% of the home purchase price in addition to the usual monthly rent. The additional payments are later used to buy down the cost of the property. Both buyer and seller need to sign a lease-purchase agreement in order to make this deal effective.

Advantages of lease-to-purchase option

One of the greatest advantages of lease-to-purchase option is that it helps people to own a home. It is highly beneficial for those who are not able to get a financer or make the required down payment in order to purchase a home.

Apart from the above benefit, US real estate lease-to-purchase is beneficial for buyers in a number of other ways, which are given below.

• Build up down payments – The buyers can build up down payments as well as improve their credit profile to get a favorable mortgage.

• Select neighborhood – A rent-to-buy contract is usually signed for 12-36 months, after which, the renter is supposed to purchases the property. Therefore, the buyers get the chance to experience the neighborhood without major commitments. If they don’t like the locality, then they can search for another home as soon as the contract ends.

• Lower down payment – Nowadays, lending institutions are asking borrowers to make 30% down payment to obtain a mortgage. However, lease-to purchase is offered mostly by individual sellers, who have bought new homes but are unable to sell their old ones; therefore, they offset a certain amount of the mortgage cost.

Disadvantages of rent-to-buy option

There are certain negative aspects of US real estate rent-to-buy options, which are discussed in the following lines.

• Don’t qualify for a loan – If the buyers cannot arrange the amount after the completion of the rental period, then they may have to lose the cash that they’ve invested in the property.

• Chance of losing investment – This lease option offer least protection to the buyers who’re not able to make the required payments on time; therefore, they lose the up-front fees if they’re evicted from the property.

• Foreclosure scams – Renters may unknowingly do lease-option deals with owners who are already going through foreclosure. If this circumstance, the bank may repossess the property and the renter is evicted from it.

• Falling property price – Usually the home price gets locked at the time of signing the contract; therefore, the buyers may have to pay high price even if the property value goes down.

If you’re thinking that only the buyers need to be cautious about the drawbacks of US real estate lease-to-purchase option, then you’re wrong; even the sellers may have to face certain adverse consequences. At the end of the contract, the renters may choose to not purchase the home if the property price decreases by that time; the renter may buy a more valuable property at same price. When this happens, the sellers experience huge loss in comparison to the price that they had planned originally.

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