Are There a Lot of Rent to Own or Seller Financing Options Available to Buyers?

Have you ever thought of owning your own home, but you either don’t have the down payment or you can’t get a loan because your credit isn’t so great?

Some attractive alternatives may be seller financing, or  rent to own, which is sometimes known as a lease option.

Seller Financing

Here’s a basic explanation:

This current market is a Seller’s market here in Hawaii. That means that there are more Buyers than there are homes to buy, so that has the tendency to drive the prices up. It’s the law of supply and demand.

Things tend to change when the market turns. This usually follows the interest rates going up, or loans being harder to get. There will be fewer buyers because less people will be able to qualify for a loan. This could be because the credit score requirement might be higher, or they can’t afford the payments with the higher interest rates.

It usually will take a little while for the housing prices to decrease because the value is calculated on past sales, not what is sitting on the market today. Also, sellers will still want hold on to the price they feel their house is worth. That’s basic human nature.

As sellers are sitting on their properties that are not selling, they will sometimes look for alternatives. One would be seller financing, if they can do it. That would normally come in the form of a Purchase Money Mortgage or Agreement of Sale.

Rent to Own

The other alternative is a rent to own, or lease option. There are different ways of structuring it and it is an agreement between the buyer and the seller.

The seller will normally ask for an option consideration (like a down payment) that is non-refundable. The price of the home is normally determined at this time. How the price is determined is up to the seller. Many times they will take the current value and add the average increase over the past few years to determine the price when the option term is up. The option duration is also determined at this time.

The potential buyer will rent the house as usual, and at the same time be saving their money and work on fixing their credit.

Usually, the option consideration that the potential buyer paid is credited toward the purchase price of the house. Sometimes a portion of the rent paid will also be credited toward the purchase of the house. This helps the buyer with the down payment. This is all negotiable between the buyer and the seller.

Lease Option

When the time comes for the lease option to be exercised, the buyer will then get a loan and purchase the house. If they choose not to exercise their option, then they can walk away, like a rental, with no obligation. They will, however, forfeit their option consideration, which is usually a significant amount.

Most homeowners will not offer either of these alternatives. Most of them just want to sell and be done. It is more likely that alternatives like this will be offered by Real Estate Investors, who are well versed in these types of options.

As always, it is highly advisable to get professional legal advice.