What Are the Requirements for Rent to Own?

Rent to Own homes don't have to be small.

This is a 7,500 Sq foot Rent to Own home we've represented.

We're often asked what the requirements are for Rent to Own. Every situation is different, every home is different, and of course, everything is negotiable -- but here are some basic criteria:

Challenged Credit is OK

Many people who would like to own a home feel that they can't because their credit score is not high enough. But with Rent to Own, you have the opportunity to begin earning equity or paying down the purchase price of a home while you're renting -- even before your credit score is high enough for you to qualify for a mortgage. Rent to Own is the perfect option for someone who is rebuilding their credit.

Income Three Times the Monthly Payment

Typically you'll need income at least three times the monthly rent payment to qualify. This is true whether you're doing Rent to Own, or just a straight rental. Most landlords will not accept an applicant who does not have income of at least three times the monthly rent or mortgage payment. The same goes for banks and mortgage lenders -- they will only lend you money at approximately this same multiplier of three times your income.

As experienced landlords and property managers, we know there is a very good reason for this. In general, when the rent or mortgage payment is more than one-third the household income, and things come up in life, you start falling behind in payments -- credit cards, car loans, utility bills, rent... Believe it: One-third is the limit for your housing expenses or you'll soon end up in financial trouble.

The Option Fee

This Rent to Own home in Bolingbrook was purchased
through our program.

The option fee is the money you pay to lock in the option to purchase the home, and usually you're locking in an agreed upon price right from the start. Usually, you're also earning the right to build up rent credit toward the purchase price of the home. Are you getting rent credit toward the purchase where you're renting now?

Option fees give you the sole right to either purchase the home, or not, during the option period, which usually lasts one or two years. Option periods can often be extended if necessary. During the option period, the homeowner cannot sell the home to anyone else -- you are controlling the destiny of that piece of property -- you have paid for the exclusive right to purchase the home during that period. For this reason, option fees are non-refundable.

Typical option fees are in the 3 to 5 percent range (of the purchase price of the home). So for a $100,000 home, you should expect to pay approximately $5,000 in option fee, in addition to your first month's rent, before moving in. For a home in the $150,000 range, budget approximately $7,500 for option fee. For a $200,000 home, plan on approximately $10,000. You get the idea.

Of course every home is different, and every situation is different. If you're going to do a Rent to Own on a home, you should expect to make a fair and reasonable offer of option money. If you've only got the first month's rent, and an equal amount in addition to that (as in, one month's security deposit), you're probably not ready to move toward home ownership just yet.

These Are The Basics

These are the basic requirements of Rent to Own, although some other criteria can come into play. Most sellers will not enter into a Rent to Own contract -- or any rental contract -- if you've had an eviction, or if a landlord has a judgement against you. This will show up on your credit report.

Also, if you've just started a new job and don't have a track history of solid employment, you might need to wait until you are more "seasoned" at your job.

Again, every home is different, every situation is different, and everything is negotiable.

If You're Ready to Rent to Own

We always have Rent to Own homes available.

If you're ready to Rent to Own, call or text Adam at 630-697-4500 or email Adam@MyHappyHomeSolutions.com.