What does someone need to qualify for rent-to-own?
We all have heard of this several times: renting is synonymous to throwing the money away. Rent-to-own is the process that merges the positive parts of both renting and owning a property. Though not very tempting for fast home buyers, it’s still a good way to own a home. As a buyer, this process will provide you with more time to clean up your credit issues and save you from making the down payment necessary for mortgages. Most of the times, your payable monthly rent is divided into two parts – one is your actual rent and the other portion goes toward future purchase of the home you’re renting. It’s important to note that everyone doesn’t qualify for a rent-to-own agreement. The seller needs to be ensured that you’ll be eligible for a mortgage after the contract expires. This provides the guarantee that s/he can sell the house to you at the appropriate time. In this post, we’ve collated some common qualifying criteria required to enter into a rent-to-own contract.
- Income: Proven income is a crucial factor for entering into a rent-to-own agreement. Ideally, a seller looks for two key factors: you can afford to pay the monthly rent amount throughout the tenure mentioned in the rental agreement and stability of your income that will be required by the lenders to approve you a home loan. Therefore, it’s better to show up prepared with your bank statements and a couple of year’s tax returns in case you’re self-employed.
- Credit score: A certain credit score might not be required to enter into a rent-to-own contract but high enough credit score assures the seller that you’ll avail a loan easily when the rental agreement expires.
- Personal history: Apart from checking your credit history, in most of the cases, your tenant history and/or a background check will be performed by the seller. If the check reveals that you’ve had any legal problems or criminal records, you are most likely not to qualify for a rent-to-own agreement.
- Age: Almost every state needs you to be of minimum 18 years to enter into any legal agreement. Additionally, there could be certain age requirements in case the house is located in a community comprising of active adults or seniors only. These communities generally allow residents of minimum 55 years and above. In such cases, the seller won’t be able to make the contract if you don’t fulfill the age requirements of the community.
Entering into a rent-to-own agreement allows you to check out the house and the neighborhood as well. You may also finalize the sales price and applicable terms upfront as that’ll help you purchase the house within a few years down the line and probably, at a price that’s below market rate. So, if you aren’t in as much a rush as fast house buyers, rent-to-own is a good way to buy the property.