If you are struggling to qualify for a mortgage, you’re not alone! Disappearing lenders and tightened underwriting guidelines have left millions of American’s in the same boat!

While it may be tempting to throw in the towel and just rent after you’ve been turned down for a mortgage, don’t give up your dreams just yet!

Why not Rent to Own a home?

Rent to Own homes, also know as Lease Options, are becoming more and more widely available across the United States.

Quite simply, you lease the home for a set period of time (typically at least 24 months) with an option to buy the home at the end of the period. The price of the home will be set at the beginning of the term, so you know exactly what you will be paying up front!

The seller will usually require between 2%-5% as an option fee to lock in the home price and have the exclusive option to purchase the home. This means that the seller must sell the home to you at the end of the term, but you are not obligated to buy.

Most all Lease Option or Rent to Own contracts will have some sort of rent credit. This is the amount of your payments that will be credited back towards your purchase price when you go to get a mortgage.

For example, if you buy a home for $ 515,000 with a $ 15,000 rent credit, when it comes time to close on your mortgage, you would only owe the seller $ 500,000. Assuming your term was 24 months, $ 625 of every payment you have made will have gone towards the purchase price.

Additionally, many lenders will allow you to use the appraised value rather than the purchase price at the end of the term when qualifying for a mortgage. This, combined with the rent credit, could possibly mean that you have very little additional down payment to make. (Of course there is no guaranteed to this.)

Another benefit of a Rent to Own or Lease Option contract is that you have the option to buy the home but are not legally bound to do so. With volatile home prices, having an out is a great strategy. This is the biggest reason I recommend that buyers do a Lease Option versus a Lease Purchase.

In addition to financial benefits, there are many psychological benefits of Lease Optioning a home versus just renting. Because you are planning on purchasing the home some day, you are much likely to think of it as your home. Additionally, unlike a single year lease, you know you will be there for at least two years. This means you can settle in and think about doing thinks that make a home feel like your own – like painting and planting.

Both financial and psychological benefits make leasing with an option to buy a great choice for those who would like to by a home but cannot qualify in today’s market. After all, doesn’t your family deserve a home of their own?

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