Want a House? How about Rent to Own

So, you’re sick of renting. You want your own home, but you do not have much of a down payment. Perhaps your credit rating is making it nearly impossible to get a mortgage. Don’t worry, there are some options that can help. One great way to purchase a house is through rent to own. In this article, we are going to focus on rent to own homes in Salt Lake City, Utah but the principles will apply to any market.

How to Rent to Own in Salt Lake City

A rent to own or lease option arrangement is the middle ground between renting and buying. First, you find a home that suits your needs and is available on a rent to own basis. To secure the lease option, you will pay an upfront option fee which is usually 2 to 7 percent of the purchase price.

You then enter into a lease agreement for 2 to 3 years. During this time, you pay the standard rent plus a little extra (an additional 20 to 50%) that is put towards the purchase of the house. This is called a Rent Premium or Rent Credit. At the end of the lease agreement, you have the choice whether or not to complete the purchase.

If you complete the purchase, the Rent Premium is credited towards the down payment. In some cases, the option fee is also included. If you are unable to qualify for a mortgage, you can either extend the lease term or you can terminate the contract.

What will it Cost to Rent to Own in Salt Lake City, Utah?

The cost of rent to own is going to be higher than just renting. That stands to reason since a rent to own is astructured way to save for a down payment while renting. Just as rent and home prices vary, so will the cost to rent to own in Utah.

To give you a general idea, however, look how Salt Lake City, Utah rent to own would work out. As of January, 2017 the median rent for a 3 bedroom, 2 bath house in Salt Lake City is $1,500.  Now the additional amount that you will pay towards the purchase is negotiable. Generally you should expect to pay 20 to 50% above the market rent. For the sake of argument, let’s go with 25%, which is about average. So you will pay $1,500 a month in rent and an additional $375 towards the purchase. If your lease lasts 3 years, you would have a rent credit in the amount of $13,500. Median home values in Salt Lake City are $280,000. If you paid a 3% option fee of $8,400 and combined that with the rent credit, you would end up with a down payment of $21,900 or 7.8%. Not bad.

The more you pay towards the Rent Premium each month, the more you will have as a down payment when it comes time for a mortgage. The higher your down payment, the lower your interest rate and the lower your payments will be. Rent to own is a great way to lock the perfect home into a contract while giving you time to come up with the cash and the credit to buy it.

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