Do I Earn Equity With A Rent To Own Agreement? – Baltimore Rent To Own Program

rent to own processThe answer to this question has changed in recent years based on new laws that affect what a home owner can do when they’re selling their house under a rent to own agreement.

One of the big benefits of owning a house is that you (hopefully) earn equity as you make payments and pay down the mortgage.

One thing many home owners don’t take into account is that really during the first 5 years (or more) the majority of your mortgage payment to the bank is interest. Very little actually goes to pay down the principal and earn you equity. The 2nd half of your mortgage is usually where the majority of your equity is earned since most of those payments go to the principal.

So how does it work with a rent to own agreement?

When you do a lease option / rent to own home in Baltimore there are various types of arrangements you can choose to take, but the most common is this:

  1. You find the rent to own house you like and apply.
  2. You and the rent to own house owner agree on a monthly rent, a “move in” type fee that basically pays for the privilege to have the opportunity to purchase the home, and the price of the purchase at the end of the rental agreement if you want to buy it.
  3. You move in and pay your monthly rental payment.

In the old days of lease options / rent to own agreements, a home owner was allowed to let a portion of the monthly rental payment be applied to the purchase price as a pre-paid down payment. This helped the tenant buyer earn money off of the purchase each month they made a payment and it helped the house owner sell the house more often at the end of the rent to own agreement since now the tenant had some “equity” in the deal.

But in recent years a bill was passed in Washington D.C. called the Dodd Frank Act that has placed restrictions on rent to own programs, including limiting the ability to apply rental payments to the end purchase of the home.

But There Is Still Opportunity To Earn Equity With A Rent To Own Contract

One of the great benefits of renting to own a Baltimore 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. If the market does really well during your rental term and the house goes up in value, the price you and the seller agreed on cannot be raised.

Is there a guarantee that the value of the home will go up and you’ll earn equity?

No. Make sure you do some research on other homes in the area when you’re negotiating the rent to own agreement.

Do you HAVE TO buy the house at the end of the rental term?

The answer is no. If you decide you don’t want to (or can’t) buy the house at the end of the rent to own agreement, you can continue to rent if the owner will allow it or you can leave. You’re not bound to purchase the house. However, the seller is bound to sell you the home at the predetermined price as long as you followed the contract terms (i.e. – you didn’t miss payments, you weren’t evicted from the house because of a breach of the rental agreement, etc.).

If you want more information about our local Baltimore Rent To Own Homes Program, simply give us a phone call at (443) 863-9808 or fill out the form on this website to see our current LIST OF AVAILABLE RENT TO OWN HOMES here >>

 

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