If you're reading this blog post, chances are you already know what Rent to Own is. You're past the point of questioning whether Rent to Own is a scam. You know that it's a viable option for you but now you're trying to decide which Rent to Own company to go with and you're not quite sure. They all seem to make similar promises. A future of homeownership being the main one. But how do you decide what Rent to Own company to move forward with? In today's post, I will tell you 3 questions that you should be asking a Rent to Own Company before you take the plunge.
And I'll tell you what kind of answer to look for (and what to look out for), so you can make the best decision for yourself and your future self can thank you later!
Question 1: What are your minimum qualification criteria?
Alright, alright.
You might be thinking, the lower the qualification criteria the better chances of me qualifying! And while this may be true, it might just be a recipe for your failure. A good Rent to Own company that has your best interest at heart will require at least 2 things:
Minimum funds for a down payment
Minimum household income
Both of these will be relative to the purchase price of the home. Minimum down payment Typically, minimum funds for a down payment will be at least 2% of the purchase price of the home. So if homes in your market are selling for $500,000, then you would need to have at least $10,000. Anything less and you risk not being able to accumulate enough down payment savings throughout the term, which risks your entire investment and wastes your time.
The only person that wins in this scenario is the rent to own company. So be cautious of any company that claims to accept people into the program with less than 2% down. Minimum household income Minimum household income includes income from all persons that will be applying to the program (applicants). One important thing to note is that applicants MUST stay on for the entire rent to own term and MUST be ready to be on title and participate in mortgage qualification activities at the end of the rent to own term. If a rent to own company is not asking you questions about the applicants to verify that they intend to stay on for the entire term, they are not doing proper due diligence on their end to ensure you will be able to qualify for a mortgage at the end of the term. As far as the actual minimum household income, the requirement will vary depending on several factors but a good rule of thumb is that annual household income should be no less than 25% of the price of a home in your market. Taking the $500,000 home in this example, then your household income would need to be at least $125,000. This could be split between yourself and a co-applicant $25,000/$100,000, $50,000/$75,000 or in whichever way adds up to $125,000. It doesn't matter. Or you could qualify on your own if you have at least $125,000 annual income. There are also other ways you could offset the minimum household income requirements such as purchasing a duplex or a triplex property and living in one unit and renting the others, but that's for another blog post in the future. The important part here is that a rent to own company should have minimum criteria. If they will just accept anyone into the program, that's a big red flag!
Their utmost priority and concern should be your ability to qualify for a mortgage at the end of the term. And having minimum down payment and income requirements is essential to that. Question #2: What kind of support do you provide to me during the rental term? Ooohhhh.. This can feel a little uncomfortable to ask. I mean, you're looking for their help to get into a home, right? So how could you ask for anything more from them? Wrong! It's super important that the company you work with wants to help you! The reason you are looking to rent to own to get into homeownership in the first place is likely because you have some challenges that need to be addressed.
Insufficient down payment savings, bruised credit, self-employed... Regardless of the challenge, the important part is that you need to work towards addressing these challenges in order to be mortgageable at the end of your rental term. And while you may be capable of resolving these problems on your own, you want to know that at least the company you are working with has a concrete plan that you can follow, AND they will be there to help and guide you along the way! You also want to know exactly what you need to do to be able to qualify for a mortgage at the end of your rental term. And it's up to the Rent to Own company to provide you with a step by step, actionable plan for you to follow. They should also be able and willing to provide you with support and answer any questions you have not only before entering the program, but at any time throughout. This isn't a "set it and forget it" process. It is a "put the time and effort in and follow the plan" process. And it's essential to ensure your successful outcome at the end of the program.
Which again, should not only be your priority, but also the Rent to Own Company's priority. Last Question: How do you handle unexpected situations? This is a question I don't hear as often as I'd like when talking to rent to own applicants. But it's a super critical question to ask. And when someone does ask me this question, I respect it! Because it's another one that can feel kind of uncomfortable to ask! No one is signing up to fail. No one wants to anticipate a major life change that will have an impact on their road to success. Let alone talk about these possibilities with a company that might be their last resort to owning their own home. But really, I promise you, you will be glad you asked. Not every Rent to Own company operates the same way. Some companies might say hey, if your circumstances change, too bad so sad. They'll keep your deposit and the home, and your left to fend for yourself again. But other companies understand that things come up. Life happens. And while it's not ideal, they have options for how they handle these types of situations so that both yourself and the rent to own company feel comfortable with the outcome. A good example of how a rent to own company might handle a turn in the market where home values drop is to provide an option to extend your rental term 6 months or a year while the market adjusts. But this is just one example. What you're looking out for when asking this question is transparency and a willingness to work with you. Do they seem cagey when you ask the question? Are they dismissive and suggest if something changes that's your problem, not theirs? Or do they express empathy and understanding that things happen and have a plan or options that they could default to in these extenuating circumstances. It's not an exact science though so don't expect a 100% concrete answer, but look for the underlying tone in their response. Are they human? And understand that life happens but ultimately want you to succeed? Or are they money-hungry, look out for themselves types and lack any sort of flexibility or willingness to work through situations with you as they occur?
The answer to this question can be super telling.
You wouldn't get into business with someone who wasn't willing to work through things with you, would you?
So why engage with a Rent to Own company who holds your future in your hands if you didn't think they were willing to work through important life events with you? Final Thoughts I'm so glad you came across this blog post because it already means your head is in the right place. You're already doing your research to make sure that you make the best decision possible for you and your future self. And I hope that you found this post helpful and it has brought you some peace of mind on your journey to homeownership. BUT - if you still feel a bit unsure about choosing a rent to own company on your own, then lucky for you, I just so happen to know a thing or two about choosing a reputable rent to own company. So fill in my pre-qualification form today and I'll reach out to set-up a phone call. Even if you're not located in one of the markets that I mention, I can definitely help get you connected to a reputable company in your area. Wishing you the best on your homeownership journey! Until next time, stay well.
Victoria
P.S. Did you know that I am an advocate for people just like you!
I make it my mission to help people in whatever way I can. Whether that be through my own Rent to Own Program, referring you to another program that better fits your situation, or helping you navigate anything homeownership, rent to own or even rental related.
Reach out to me by email any time and I promise I'll do my best to help you navigate whatever you're dealing with.
Your awesome, thank you.