A private rental contract is a good option for the tenant who wants to become a landlord, but due to lack of means for down payment or bad creditworthiness, they are not eligible for the mortgage. In this way, the owner is bound by the contract and cannot deal with third parties. This greatly limits financial flexibility. Donors cannot renegotiate the terms if the market increases or is sold for the package, if it suddenly needs money. While leases are traditionally for people who cannot qualify for compliant loans, there is a second group of candidates who have been largely overlooked by the rent-to-own industry: people who cannot obtain mortgages in expensive and non-compliant credit markets. “In high-priced urban real estate markets, where jumbo (non-compliant) loans are standard, there is a strong demand for a better solution for financially viable and solvent people who cannot or do not want to get a mortgage yet,” says Marjorie Scholtz, founder and CEO of Verbhouse, a San Francisco-based start-up. Learn more about how the lease-to-own process works. But Monzo warns tenants interested in leases, eyes wide open to such a contract. For example, rents of USD 1,000 per month can be easily converted into a payment of 1,250 USD per month with a rental agreement. This is called a rental premium. Conversely, if you decide not to buy the house – or not be able to provide financing before the end of the rental period – the option expires, and you leave the house as if you were renting another property. You will probably lose all the money that has been paid up to that date, including option money and earned rental credit, but you will not be required to continue renting or buying the house.
Monzo says that each owner sets the contract in a different way – some of them are legal and some are not. “An owner may have a lawyer who develops a contract; others go to Google and find a contract; another decides to grab it himself,” says Monzo. At the end of the rental period, the tenant/buyer has the opportunity to purchase the house. The lump sum and rental credit from the original deposit will only be released to the buyer in the form of a down payment on the house, if the tenant/buyer decides to buy it. The tenant/buyer is responsible for guaranteeing the mortgage required to complete the purchase of the house. It is important to note that there are different types of leases, some of which are more consumer-friendly and more flexible than others. Options leases give you the right, but not the obligation to buy the house when the lease expires. If you decide not to buy the property at the end of the lease, the option expires and you can leave without any obligation to continue paying or buying rent.
This is not always the case for leases. Although tenants are responsible for all repairs and maintenance, they must still comply with all lease conditions. This means that tenants cannot have unauthorized residents or pets if the rental agreement specifically states. What steps should you take if you are considering an apartment to rent? Warning: The Lagos State Home-Ownership Mortgage Scheme (LagosHOMS) is a home rental program for people who cannot afford to mortgage but will be able to do so.