With borrowers having a hard time getting financing these days, and developers having a hard time getting rid of their home inventory new strategies for home ownership are emerging such as the rent/lease- to- own option.
This option is characterized by a lease in combination with an option to buy within a specified time period (normally 3 or less years) at an agreed upon purchase price.
The borrower (lessee) paying an option fee, usually ranging from 1-5% of the price, which is credited to the total purchase price. The borrower pays rent and an additional rent premium usually per month which is also credited to the price and seen as equity in the property.
The major advantages of such an option is that buyers have the time to build up down payments so they will eventually be able to qualify for the mortgage they are seeking, improve their credit history and take time to live in the home and area without a major commitment.
There are pro's and con's of course for each party. For buyers, if you still cant get financing at the end of the lease period you may have to forfeit all the extra cash you've invested. Also, determining a purchase price may be tricky at the moment, with housing rates falling and the market in flux, sellers may want to re-negotiate when the contract is up. Also, renters may not decide to go through with their options if prices continue to fall, which is less of a loss then taking on a depretiating property. This may lease sellers with a larger loss then if they would have originally sold, and were also carrying the cost of the property during and after that time period before they find new buyers.
