Are you curious about rent to own, but don't have any money to put down? Wondering if a no-money down rent to own option can work for you?
It is a very important question and good for you for doing some research on the topic. You will need to understand the challenges that will come as a result of a no-money down rent to own. Hopefully this article will heighten awareness around some of the questions you need to ask to protect yourself if you are pursuing a no-money down rent to own.
Simply put, a no-money down rent to own is one where you do not have to put any money down in order to get into the program.
What are the implications?
1. More risk to the investor so they will offset their risks by charging you higher monthly rents (maybe even higher than market rents). I have seen situations where rents for a no money down rent to own were as high as $ 2000-2500 when the market rents in the same area were $ 1500 per month. This amount of $ 2000-2500 does not always account for any money being credited towards your down payment so be sure to ASK!
2. You will have to save up a greater portion of your down payment by yourself before the end of the rent to own program or risk not qualifying for a mortgage and consequently losing the property. Looking at this in terms of numbers, an average house price of $ 300,000 will require a 5% down (or $ 15,000). If you come into the rent to own with ZERO down, you will need to save up $ 15,000 over an average term of 3 years (for example) to qualify for that mortgage at the end of the term. That means saving $ 5,000 a year. If your rent to own allots, say, $ 200 a month towards your down payment, you would accumulate $ 7,200 over the three years. That means you would need to make up the balance, or $ 7,800 yourself. If you are unable to do this, you will not qualify for your mortgage and you will more than likely be asked to leave the house at the end of the rent to own term.
3. You will not build up any equity in the property (basically you are a renter (paying higher than market rents) with the hope that you can save up enough down payment and purchase the property at the end of the rent to own program. Equity is the amount of money you have invested in the property or earned on the value gain for the property. For example, if you put $ 10,000 down on a property, you automatically have $ 10,000 in equity in that property. If you put no money down , you have zero equity in the property.
4. In many cases (not all but many), you will be left to your own devices to …