Obtaining a traditional mortgage can be difficult for some borrowers based on their current financial situation. However, this doesn’t diminish the desire most people have to own their own home. Instead of a mortgage, some consumers opt for a rent-to-own or lease with option to purchase program when it comes to achieving their home ownership goals. Unfortunately, home lease programs may not be the best option for potential homeowners.
At California Mortgage Advisors Inc., we believe that every individual has a right to home ownership regardless of an individual’s current financial situation. We also believe that the very first step in home ownership should start with a consultation with a qualified Mortgage Advisor who will thoroughly walk you through the mortgage qualification process then present to you all the loan options. Our Mortgage Advisors are available at (800) 927-6560 to answer questions and assist borrowers of all financial backgrounds.
What is Rent-to-Own or a Lease Option?
A Rent-to-Own or Lease Option to Purchase works similar to other types of lease agreements. A potential buyer and a homeowner agree on a future sale date and sale price for buying. The potential buyer then pays a lease fee to the owner and signs a lease agreement before moving into the house. The potential buyer then rents the home for a price that is slightly above market value for comparable homes. He or she then has the option to buy the home for the agreed upon price at any point on or before the agreed upon date. If a sale is agreed upon, the initial payment as well as the extra portion of the rent payment may be applied towards the purchase price of the home.
Why Use Rent to Own?
Leasing a home with a potential purchase agreement is perceived as an option for individuals who desire a home but currently lack the credit score or financial resources to obtain a traditional mortgage. A rent-to-own agreement allows them to “remove” their desired home from the real estate market while they save funds for a down payment or rebuild their credit score. It also allows them to lock in a future purchase price, which insulates them from housing market fluctuations while they improve their financial situation.
Concerns
The main drawback with a rent-to-own agreement is that despite a formal lease agreement, potential buyers are still at a significant disadvantage compared to the original owner. If at the end of the lease agreement, the buyer decides that they do not want to purchase the house then they usually forfeit all of the additional money and fees that they have paid in. However, if at the end of the lease agreement the homeowner changes their mind and decides they do not want to sell the home, the buyer has little recourse for recovering the additional money and fees. Yes, the homeowner will be in breach of contract, but they also have physical possession of the funds. Recovering the funds, in this case, involves costly and prolonged litigation.
Additionally, buyers also have little protection against dishonest sellers or outright scams. Many buyers have reached their lease purchase date only to find out that the homeowner is behind on mortgage payments or that the home has several liens against it. In many cases, the homeowner may have completely lost possession of the property during the rental period of the lease agreement without informing the buyer.
Alternatives
At CMA, we understand that not every borrower is going to have perfect credit or access to extensive additional resources. However, many borrowers are also unaware of the plethora of mortgage options and government programs that make owning a home a possibility for almost everyone. Our Mortgage Advisors are experts at connecting borrowers with mortgage programs reflective of their personal situation regardless of what that situation may be. Even if you have been turned away by other lenders, you deserve a second opinion.
At California Mortgage Advisors Inc., we genuinely believe that we offer our customers the best mortgages in the industry. We have offered a variety of loans since 1993, which means our Mortgage Advisors have successfully matched tens of thousands of borrowers with loans tailored to meet their needs and unique financial situations. Our Mortgage Advisors are available at (800) 927-6560 to answer your questions or click here to apply online.
