Why Rent-to-Own Programs Could be a Risk for Buyers
and Sellers
By Ramsey Judah
April 8, 2009
Rent-to-own programs have created quite a buzz with new home buyers. But they could create
potential pitfalls for both parties, especially for the buyers. Rent-to-own programs are not really
programs, they are basically two separate agreements that a potential buyer negotiates with the
seller.
There is a contract to purchase the home, otherwise known as an "option," which is negotiated with
a purchase price and sometimes a down payment that goes towards the purchase price. And then a
lease is negotiated with price on the rent, which is typically graduated beyond the base rent
agreement. The graduated part of the rent also goes towards the purchase price as a down payment.
The risk is much more for the buyer than it is for the seller, as the seller only really misses out on a
sale of the house. If the buyer no longer qualifies for a loan for the home, then he or she loses the
option and the graduated rent payments that are made to the seller. In other words, it would end up
just being a really expensive rental.
A buyer has to be very wary of the contract they are signing as wording could really put them at a
disadvantage when exercising their options. Scams have been found where contracts give the owner
full authority to reject an option and cancelling everything without any retribution to the potential buyer,
even if they fully qualify for the home. Then the scamming seller can do a whole new rent-to-own
agreement with yet another victim.
Rent-to-own can be a great option for buyers who need to repair their credit, but they must make sure
to have a plan in effect in order to make sure their credit gets repaired. Otherwise it'll be a very
worthless and expensive venture.
Ramsey Judah is a Broker with US Homes and can be reached at ramsey@ushomesrealestate.com.
and Sellers
By Ramsey Judah
April 8, 2009
Rent-to-own programs have created quite a buzz with new home buyers. But they could create
potential pitfalls for both parties, especially for the buyers. Rent-to-own programs are not really
programs, they are basically two separate agreements that a potential buyer negotiates with the
seller.
There is a contract to purchase the home, otherwise known as an "option," which is negotiated with
a purchase price and sometimes a down payment that goes towards the purchase price. And then a
lease is negotiated with price on the rent, which is typically graduated beyond the base rent
agreement. The graduated part of the rent also goes towards the purchase price as a down payment.
The risk is much more for the buyer than it is for the seller, as the seller only really misses out on a
sale of the house. If the buyer no longer qualifies for a loan for the home, then he or she loses the
option and the graduated rent payments that are made to the seller. In other words, it would end up
just being a really expensive rental.
A buyer has to be very wary of the contract they are signing as wording could really put them at a
disadvantage when exercising their options. Scams have been found where contracts give the owner
full authority to reject an option and cancelling everything without any retribution to the potential buyer,
even if they fully qualify for the home. Then the scamming seller can do a whole new rent-to-own
agreement with yet another victim.
Rent-to-own can be a great option for buyers who need to repair their credit, but they must make sure
to have a plan in effect in order to make sure their credit gets repaired. Otherwise it'll be a very
worthless and expensive venture.
Ramsey Judah is a Broker with US Homes and can be reached at ramsey@ushomesrealestate.com.
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