Rent 2 own is often portrayed as a program to help renters become homeowners. It is exactly that.
Most of our applications come from people who are just sick and tired of being life-long renters. They want to quit being controlled by a landlord, or they fear losing their rental when the owner decides to sell, or they want to quit paying someone else’s mortgage, or they just are tired of moving all the time and want to settle permanently, or they want to start building their own equity.
Or all of the above. Those are all good reasons to engage rent 2 own.
But, did you know there are instances where rent 2 own is the perfect solution for homeowners who are in distress? Here are three scenarios where rent 2 own can be the solution to dilemmas homeowners may be facing.
Mortgage rules are always changing. When you first get into a home, you may be buying it with 10% down, or perhaps even 5%, which was common a few years back. Typically, you take a five-year term on that mortgage. As long as you make your payments, you’re safe for those five years.
Now it’s time to renew. In theory, it should be easier to qualify now because you own more of the property, plus it’s likely appreciated. Instead of 5 or 10%, you likely own 20% or more of the property now, so qualifying should be easier. But, the mortgage rules have changed, perhaps several times, over those five years. Perhaps things have also happened in your life to make you a greater credit risk to the lender. And you find you don’t qualify for renewal.
The bank demands the mortgage be paid out. What do you do?
Here’s an option: You approach a rent 2 own provider and sell the home to the R2O company with a lease-option agreement to buy the home back in two or three years. Then you follow the same procedure as in any other rent 2 own scenario. The rent 2 own provider helps you get back on the path to mortgagability, plus you buy a couple of years’ time to get into a stronger equity situation.
You get to remain in your own home with the rent 2 own company bridging your “eligibility gap” for a few years. In the end, you own it again.
This is really just a special case of the above scenario. You’ve fallen on hard times and gotten behind on your payments. The bank finally steps in and begins foreclosure proceedings. The judge agrees but gives you “x” amount of time to make a deal.
Panic sets in; you have limited time in which to avoid losing everything you’ve worked so hard to get. In these dire straits, you’ll likely take whatever deal you can get, as long as it’s better than losing everything. But, even if you do that, you’re now out of your home, and, almost certainly, a renter again, the payment delinquency having ruined your credit so that you can’t qualify to buy even a lower valued property.
Here is when you approach a Rent 2 own provider. Instead of fire-selling the property, you sell it to them, rent 2 own it for a time while you rebuild your credit and, possibly, save a bunch of your equity, and then buy it back. Of course, it still has to be a worthwhile investment for the Rent 2 Own investors, but likely you’ll do a lot better than dumping it to avoid foreclosure.
And you get to stay in your home the whole time.
One of the tragedies of relationship breakdown is often the loss of the home you have shared. During the partnership, you qualified jointly to carry the property. But now, with your equity cut in half and your ability to support the mortgage also greatly reduced, neither party can qualify on their own to retain the property.
Typically, you sell the property and split the proceeds. Under duress, you may need to take less than the property’s value. Now you each have only a small amount with which to rebuild. You must down-size, and even that may be difficult. Here is where a rent 2 own provider can help you get back on your feet and eventually qualify on your own. I’ve had both sides of the same relationship break-up approach me about rent 2 own.
Alternatively, if one of the parties is close-but-not-quite-there to qualifying to retain the property, then the property can be sold to the rent 2 own provider, just as it might have been to anyone else. The proceeds are split up and the party close to qualifying gets to remain in the home. The other may qualify for a down-sized property on their own or may also do a rent 2 own until they do.
In all these scenarios, there is one other factor that may tip the scales in favour of rent 2 own. In each case, the property owner (the Seller) may deal directly with the rent 2 own provider (the Buyer) and avoid the real estate fees that would otherwise be incurred, thereby retaining considerably more equity.
We don’t wish for anyone to fall into these situations. But if they do, we can often provide a better solution than the alternative.