The most common terms used are:
- Lease to own refinance
- Lease option refinance
- Lease purchase refinance
- Rent purchase refinance
- Rent to own lease purchaser receives credit for equity growth in the home
- Rent to own and use appraised value as borrower’s equity for rate term
- Rent to own Loans up to $3 million and 90% LTV with no MI
- Must have canceled rent checks
- Agreement must have been executed over 12 months to use the appraised value
- LTV based off appraised value vs. purchase sales price
- LTV determined by borrowers scores/credit, rate term only
How Does Rent to Own Work? Don’t Get Scammed, Get Pre Approved For A Mortgage First!
Rent To Own Home Summary
While searching for information on how rent to own lease option works, you probably found some articles with terrible stories about people getting SCAMMED. But the truth is if you learn how a lease purchase works this option can be a win for you. Also, you will notice that victims who get scammed and lose money when renting to own are usually committing the same mistakes. Within this information, you will see the critical steps you must take to succeed.
So, how does a lease option rent to own work? A house being offered as rent to own is like a standard Florida rental home. You are still considered a tenant during the term of the lease option to buy and the owner is your landlord.
The main difference with a lease option rent to own is the seller agrees to give you the option to purchase the house in addition to renting the home to you. This is technically referred to as a lease with option to purchase or rent to own. And, instead of paying the normal rent deposit to the landlord, you will instead pay a fee called an Option Fee. The option fee is paid upfront and is non-refundable. The option fee is nonrefundable and gives you the right to purchase the home within the option time frame. The option fee does go toward the purchase price of the house when you purchase the home down the road. The option fee is negotiable and ranges anywhere from amount is usually 3-10% of the purchase price.
Lease Option Rent To Own Agreement
The lease option agreement states a purchase price that you and the landlord mutually agree upon, and is signed along with your rental agreement. The option agreement also details the period of time the seller is willing to give you to purchase the house. This length of time is called the option period and it’s often 12-24 months… but can even be 5 years or more. This option agreement is one of the most important agreements contained in the rent to own paperwork you sign.
What if I Fail to Qualify for a Mortgage in Time?
If you are unable to purchase the Florida home during the option period, one of two things usually happen:
The contract expires and you no longer have the legal right to purchase the property. Further, you forfeit all rent credits and the nonrefundable option fee paid to the seller.
The option agreement may offer you the ability to extend the agreement. If this extension is offered, it typically requires a new fee and new option agreement. For example, a seller may require that you are currently qualified for a mortgage and in the closing “process,” to qualify for the extension.
Can I do an FHA refinance a rent to own property, but am not named on the existing loan?
As long as the mortgage applicant has a legal title (even though not originally on the loan) the mortgage applicant is eligible to refinance the loan.
For additional information see Handbook 4000.1 II.A.8.d; II.A.1.b.i.(C) available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh