Repeatedly, the question arises, and it’s essential to acknowledge that the answer has evolved over the years due to new legislation affecting homeowners selling their houses through a San Antonio rent to own program.
Owning a house comes with a significant advantage: the potential for equity accumulation as you make payments and reduce your mortgage balance.
However, many homeowners overlook a crucial fact: during the initial five years or more, the majority of your mortgage payments primarily cover the interest, with only a small portion contributing to reducing the principal and building equity.
Conversely, the latter half of your mortgage term is where you accrue the majority of your equity since most payments during this period directly reduce the principal.
So how does this apply to a rent to own agreement?
In the context of a lease option or San Antonio rent to own program, various options are available. However, the most common structure involves the following steps:
- Locate a rent to own property you desire and submit an application.
- Negotiate the monthly rent with the property owner, determine a “move-in” fee, which essentially secures your option to purchase the property later, and agree on the final purchase price at the end of the rental agreement if you decide to buy.
- Move in and make your monthly rental payments while taking excellent care of the property, as you may become the owner in the future.
In the past, in lease option or rent to own agreements, homeowners could allow a portion of the monthly rent to count as a pre-paid down payment toward the purchase price. This arrangement benefited both the tenant-buyer, who accumulated equity with each payment, and the property owner, who had a better chance of selling the house at the end of the agreement due to the tenant’s accrued “equity.”
However, recent legislative changes, notably the Dodd Frank Act in Washington D.C., have imposed restrictions on rent-to-own programs, limiting the application of rental payments toward the final purchase of the property.
But There Are Still Opportunities To Build Equity Through A Rent To Own Contract
is the ability to secure a predetermined purchase price with the property seller. The beauty of this arrangement is that even if the real estate market experiences substantial growth during your rental period, the seller cannot raise the price on you. Any increase in the property’s value beyond the agreed-upon sales price during your rental term becomes your equity.
Now, is there a guarantee that the property’s value will appreciate and result in equity for you?
No, however, when negotiating the rent to own agreement, it’s crucial to research the property’s location and assess its potential for value appreciation. Base the purchase option price on your findings.
Before concluding this article, you may wonder whether you are obligated to purchase the house at the end of the rental term.
The answer is no. If, for any reason, you decide not to buy the house at the end of the rent-to-own agreement, you have options. You can either continue renting if the owner agrees or choose to leave. You are not compelled to make the purchase. However, the seller is obligated to sell you the property at the agreed-upon price as long as you have adhered to the contract terms, such as making timely payments and not breaching the rental agreement.
For more information about our local San Antonio Rent To Own Program, please feel free to contact us at (210) 791-9242 or complete the form on this website to view our current list of available rent to own properties here>>