Rent to own in Georgia is an excellent solution for someone wanting to buy a house, but may not be able to qualify for a bank loan for some reason.
Maybe your credit isn’t perfect, maybe you have a lot of debt (medical, credit cards, school), or you don’t have a W2 job that demonstrates regular income. All of these are reasons a bank may not issue a home loan. Many conventional lenders want to see at least a 620 credit score to qualify for a loan.
In these scenarios, a rent to own may be the best way to achieve home ownership.
What many don’t realize, however, is that a lease purchase agreement can be a great deal for home sellers as well. Keep reading to see how this type of real estate transaction can work for both parties.
How Does Rent to Own Work?
So how does this work? It starts with a home seller who either cannot or does not want to sell their property the traditional way through a realtor. There can be a few common reasons for this.
Perhaps the homeowner really isn’t ready to sell, but thinks the market is going to go down over the next few years. They can lock in a price now to sell the home later.
With a lease to own, the buyer and seller agree on a price now, and that price is locked in over the life of the agreement (unless both parties agree to change it).
Or maybe the seller is a landlord who enjoys the steady income of a rental agreement, but doesn’t want to deal with the typical landlord issues like vacancy & repairs.
These are great reasons that a home seller may pursue a rent to own agreement.
Many times home sellers think the only ways they can sell their home are by owner (DIY), or through a real estate agent. Selling through an agent can be costly, and selling by owner can be a huge hassle.
With a lease to own, you can often get a good sales price because many times the buyer is mainly concerned with being able to afford the monthly rent. They are also very happy that someone has decided to give them a shot at owning a home!
Why Buy a Home Using Rent to Own?
Ok, now you understand what’s in it for a home seller, but why would someone want to buy a house this way? Well, for many, it may be the only way that they are able to purchase a home.
Banks are hesitant to issue loans to people with low credit scores, a high debt to income ratio, freelancers, or people who have a fluctuating income.
Also, many of the traditional loans either require a high down payment (20%) or mortgage insurance which can increase the monthly payments by a few hundred dollars.
For rent to own, all terms are flexible, making it easier to find something affordable. The buyer then pays the monthly rent until either: 1) Pay off the house, or 2) Secure another loan to buy out the seller.
The Beauty of Rent to Own in Georgia
One of the best parts of rent to own agreements is that they are completely negotiable.
If the home seller wants top dollar sales price for the home, then the buyer can negotiate a lower down payment, monthly rent, or interest.
Similarly, if the home buyer can only afford a small down payment, then the seller can ask for a higher rent or eventual sales price.
If you ask for a loan with the bank, they are just going to give you a document to sign – and you can take it or leave it! If you say, “I only have $1000 for a down payment”, then they are going to say – “Sounds good – come back and see us when you have 20%.”
Example Of a Rent to Own Agreement
Let’s say that we have a home seller – Gary, and a home buyer, Jenny. Gary is thinking about selling his home, but he is also considering renting it out.
He likes the idea of a steady rental income, but really doesn’t want to deal with the hassles of being a landlord.
Jenny is moving to Atlanta and is looking for a home to buy. She makes pretty good money as a freelance writer, but doesn’t have a steady W2 income.
Her credit is also not the best because of some medical debt payments that she wasn’t able to pay a few years ago after a cancer scare. She knows she has little chance of getting a bank loan, so she searches for rent to own houses in Georgia.
She finds Gary’s house for sale on Zillow, so she gives him a call. Gary presents his terms:
- $250,000 purchase price
- $1200 per month rent payment
- 4-year lease term
- 10% option deposit ($25,000)
Jenny is good with all of the terms, but she only has $5,000 for a deposit. Gary thinks about it and decides that he can work with the $5000 deposit, if she will agree to a higher price and monthly rent.
- $260,000 price
- $1300 per month rent
- 4-year term
- $5000 option deposit
Jenny knows she can afford the $1300 a month, so this works out well for her. She isn’t worried about being able to qualify for a loan because she knows that if she gets settled in Atlanta, finds stable income, and pays down her debt, then a lender is more likely to approve a traditional loan.
Then she can buy the house at the end of the 4-year term and both Gary and Jenny are happy!
Win-Win for Everyone!
Jenny is building equity before she even owns the property and gets to enjoy living there in the meantime. If the agreement doesn’t work out for whatever reason during the option period, then Jenny can move out and walk away from the deal. But she would forfeit her option money and any rent payments she had made up to that point.
She would only do this if she absolutely has to though, because she is building equity and moving closer and closer to home ownership with every payment she makes. If she leaves, then she has to start over – not something she wants to do!
Gary is happy because he is getting monthly cash flow and he is still able to sell his house for a locked-in price. If Jenny walks away or can’t refinance into her own mortgage, then Gary keeps the option deposit and the monthly payments he has received. He can then sell the house or find another tenant-buyer.
Since this is a lease to own agreement that Gary is owner-financing, he can lengthen the term if Jenny needs a little more time before purchasing. Again, flexibility is one of the best features of a lease to own agreement.
Have you thought about renting your house? Are you having trouble selling? Have any questions at all about rent to own, lease options, lease purchases, or anything at all?