Rent-to-Own Homes: No Nest Egg Needed

A new construction condominium development in United Center Park is offering Chicago home buyers a rare rent-to-own option that gives purchasers time to save up for a down payment while living in their new home. The rent-to-own deal is offered through Dream Town Realty (details are available by contacting Ken Monarrez at 312-543-8256 or kmonarrez@dreamtown.com). This type of financing opportunity is still fairly uncommon in the Chicago housing market, but it comes at a time when the home buyers are in need of a new alternative to achieve their home ownership dreams.

Following the subprime mortgage fiasco, it became much harder for people without money for a down payment to purchase property. In the “old days,” everyone was used to saving up thousands before even thinking about buying a house. However, after a stretch where zero percent down was acceptable and lenders were providing 100% of the funds to buy residential real estate, homebuyers got accustomed to needing very little cash up front.

But times have changed, as they always do, and now most lending institutions require at least 3% down to purchase a home. That means, if you want to buy a $300,000 house or condo, you must be able to come up with a minimum of $9,000 for the down payment in order to get a loan.

For many, it can be difficult to put away that much while paying rent on an apartment. However, if you were able to set aside your rent money each month, as opposed to giving it to a landlord, accumulating enough for a down payment would be much more feasible. That’s the whole concept behind rent-to-own financing. It allows home buyers to save up for buying a home without having to worry about paying rent at the same time.

The basic rent-to-own option is simple: a home buyer signs a purchase agreement that permits them to move into the new property before actually buying it. Then, for an allotted amount of time (generally six months to a year), the occupant “pays rent” on the home, which is collected to be used as a down payment on the property they are already living in. Depending on the contract, the full rent amount or a portion of the rent is reserved for this purpose. During the “renting” period, buyers can build up a substantial amount to put towards the home. The additional lease phase can give buyers time to improve credit scores, which typically garners better mortgage rates, saving home purchasers even more money in the end.

There may be an option fee in association with taking the home off real estate listings, but the charge runs between one and two percent and can usually be put toward the down payment as well.

Rent-to-own is a great opportunity for anyone ready to move into their own home now, but needs a little extra time to save up.