This inquiry resurfaces repeatedly, and truth be told, the response to this query has undergone modification in recent times due to the implementation of new legislation that impacts a homeowner’s actions when vending their property via a rent-to-own contract.
One of the significant advantages of owning a house is the potential to build equity as you make payments and reduce the mortgage balance.
It’s important for homeowners to realize that during the first five years, and even beyond, a large portion of their mortgage payments will be allocated towards paying off interest, with only a small percentage going towards building equity and reducing the principal balance. This is a crucial aspect that is often overlooked.
On the other hand, during the latter part of the mortgage payment period, a significant portion of the payment goes towards paying off the principal, which results in the accumulation of a considerable amount of equity.
So how does it work with a rent to own agreement?
In Florida, there exist different types of arrangements that one can opt for when choosing to lease a property with an option to purchase it. However, the most prevalent arrangement entails the following steps:
- First, you identify a rent-to-own house that appeals to you and submit an application.
- Once your application is accepted, you and the property owner will agree on several terms, including the monthly rental amount, a “move-in” fee, which essentially covers the privilege of having the opportunity to purchase the property later, and the purchase price at the end of the rental agreement if you choose to buy it.
- Upon taking occupancy, it is of paramount importance to ensure that the monthly rental payment is submitted punctually and that the property’s maintenance is diligently upheld, as there exists the possibility of eventual ownership.
In the past, when lease options or rent to own agreements were prevalent, The proprietors were bestowed with the autonomy to allocate a fraction of the periodic rental disbursement as an antecedent installment towards the final acquisition valuation. This type of arrangement proved to be mutually beneficial for both the tenant buyers and homeowners. It allowed the tenant buyers to accumulate funds towards the purchase of the property each month they fulfilled the payment obligation, while enabling the homeowners to sell the property more frequently upon completion of the rent-to-own contract, as the tenant had some equity in the agreement.
However, in recent times, a legislation named the Dodd Frank Act was enacted in Washington D.C. that has imposed limitations on rent to own programs. As a consequence, the utilization of rental payments towards the final purchase of the home has been curtailed.
But There Is Still Opportunity To Earn Equity With A Rent To Own Contract
One of the great benefits of renting to own a Florida house is that you get the ability to have the home seller agree to sell you the house for a price you agree upon today.
The notable aspect of this arrangement is that if the market experiences a significant upturn during your rental period, resulting in a substantial increase in the property’s value, the landlord is not permitted to increase the rental price.
Consequently, should the value of the property increase beyond the initial purchase price during the term of your tenancy, the excess amount is deemed as your vested interest or equity. This portion may be utilized towards the eventual acquisition of the property.
Now, is there a guarantee that the value of the home will go up and you’ll earn equity?
While negotiating the terms of the rent-to-own agreement, it is essential to conduct proper research and ensure that the purchase option price is based on the potential for the house’s value to appreciate in the area, even though it may not be mandatory.
As we wrap up this article, you may be wondering if buying the house at the end of the rental term is mandatory.
The answer is no. In the event that you opt out or find yourself unable to acquire the property upon completion of the rent-to-own arrangement, you may choose to continue leasing if the landlord permits, or vacate the premises altogether. It is important to note that you are not obligated to purchase the property. Nonetheless, the vendor is obligated to sell you the dwelling at the pre-agreed price, provided that you have adhered to the contractual stipulations, including but not limited to timely payment and compliance with the rental agreement terms to avoid eviction.
If you’re looking to get more info about our local Florida Rent To Own Homes Program… simply give us a phone call at (786) 904-1444 or fill out the form on this website to see our current LIST OF AVAILABLE RENT TO OWN HOMES here >>