In Lamudi’s latest Q&A blog post, we look at the mechanics of a rent-to-own property transaction. Could this be the ideal property type for your needs and budget?
Q: How Does a Rent-to-Own Home Transaction Work?
A: They are everywhere: properties being advertised as rent-to-own homes. But how do they actually work, and is it something that potential homebuyers should consider looking into?
A rent-to-own property transaction is potentially a good way for property-seekers to own a home upfront, even if they currently do not have enough cash for a down payment. In a rent-to-own transaction, a homebuyer will be paying a monthly credit on top of the rent for the property.
For example, a Php2 million house in Parañaque City is being rented out for Php18,000. But with the rent-to-own option in place, the renter/buyer might pay a rent Php23,000 a month, for an agreed-upon rent duration (e.g., two years): Php18,000 for the actual rent and Php5,000 in rent-two-own credits.
The rent-to-own contract stipulates that after the two-year rent period, the renter/buyer should buy the house, either in cash or through a housing loan, and the Php120,000 rent credits they have accumulated over two years will form part of the down payment.
What is good about this arrangement is that the homebuyer will have ample time to save for the rest of the down payment and fix his credit standing. And since he has paid enough cash for the down payment, having a higher equity on the property will help him get qualified for a housing loan later on.
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Do you have burning question about looking for property to buy or rent? Send us an email or tweet Lamudi Philippines using the hashtag #AskLamudi
