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How It Works: Rent-To-Own in New York

By Elizabeth R. Elstien

Rent- or lease-to-own homes can help people who have poor credit or need more money for a down payment begin the path to homeownership. Designed for those who can pay a monthly "mortgage" installment, a lease-purchase option may be the ticket to homeownership for some. If you understand what's expected and learn to avoid predatory practices, a rent-to-own option in New York may be for you.

How Does This Process Actually Work?

First, you begin a lease that should specify all terms and interest rates/fees related to the lease and purchase option and move into the home. There is normally an upfront options fee with a percentage of rent paid to be applied to the mortgage should you decide to purchase the home, often minus any maintenance expenses. A purchase amount will be written into the lease-to-purchase option as agreed by both seller and buyer.

The option to purchase comes into play at a designated date as specified in the lease, usually when your lease expires, at which point you will be expected to obtain a loan from a lender or walk away from the property. Keep in mind that an FHA-insured loan is difficult to get for a lease-to-own home. This is a great way to acquire the 20% or more needed for a conventional loan down payment, especially if you can save additional funds.

If you decide not to or are unable to purchase upon lease expiration, the money paid is considered rent, and you have no equity in the home and will have lost any fees paid. You may be allowed to continue living in the home if there is a renewal option while making monthly rental payments.

Who Offers Rent-to-Own Properties?

While some lenders offer lease-to-own programs, it is more common to work directly with the homeowner or their manager. Some real estate agents have arrangements with homeowners to sell their home on a lease-to-own option. With the decline in the market, even developers in New York City are offering lease-to-own rental options in the hopes of selling units. Although there are many honest homeowners selling their home this way, be wary of any rent-to-own deal, as scams are rampant. Read the fine print and have a lawyer of your choosing look the contract over if you are skeptical.

Is This A Safe Way To Purchase A Home?

Some dishonest lease-to-own purchase options promise no qualifying, which is false advertising. Once the designated lease is up, you still will have to qualify with a bank or other lender to obtain a loan to assume the remainder of the home's mortgage. In addition, the lease may state that funds paid may only be applied toward the mortgage if "paid on time," so it is important to read the contract in detail to spot undesirable wording.

Beware of lease-purchase options that state the renter is required to take care of all home maintenance, as this is a way that many unscrupulous landlords shift all large repair bills to the tenant. It's a wise investment to have a home inspector check out your future home to ascertain its condition before entering into any contract.

How Do I Locate Rent-to-Own Properties?

Contact a developer who has units that remain unsold or call a trusted real estate agent and speak with them. Sometimes a homeowner with a property that has been on the market for several months may consider a lease-to-own option rather than letting the home sit vacant any longer. There are several websites that have sprung up to find rent-to-own homes, such as irenttoown.com or yourrent2own.com.

Is A Lease-to-Own Property Right For You?

This way of purchasing a home is a great way to check out the home and neighborhood before buying. Plus, it may be the only way some can come up with enough for a down payment on a mortgage loan, especially in a town as expensive as New York City. A rent-to-own purchase option may work for you if you understand the obligations and expectations of acquiring a home in this way. Be certain you carefully read the contract to weed out homeowners that are dishonestly trying to make money or have their home repaired for free and those with the intent of having the renter fairly purchase the home.

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