The Rise of Institutional Rent-To-Own Arrangements
For decades, the rent-to-own home purchase model typically meant a business relationship between an individual buyer and an individual seller. Since the housing bubble burst in 2007, however, the market has seen major growth in institutions – real estate investment firms – entering rent-to-own territory. Savvy buyers should know there are some clear differences in renting-to-own from an institution versus from an individual, and many of these differences can benefit the buyer.
Firstly, individual homeowners usually offer rent-to-own contracts with three-year lease periods, followed by an option to buy. Institutions, on the other hand, typically offer two-year contracts that the buyer can choose to extend for an additional one, two, three or four years. This offers enormous flexibility to a buyer who may need more time to save up for a down payment or to repair their credit score before applying for a mortgage.
Secondly, institutional rent-to-own companies tend to be publicly traded, meaning they are subject to a number of consumer protection regulations. Under these government terms, contract terms must be spelled out clearly and precisely for the buyer and they often contain built-in protections that may not be found in rent-to-own arrangements with individual sellers.
Lastly, many institutions also maintain consumer help resources for buyers who need credit counseling. This type of assistance is usually free of charge, and can be the difference between a prospective buyer getting approved for a mortgage loan or striking out with multiple lenders when the rent-to-own lease period ends.
As with any home purchase arrangement, institutional rent-to-own won’t be the most advantageous home purchase avenue for everyone. Learn about your options, consider each carefully and choose the one that best suits your financial needs and goals.
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