Rent That Builds Equity

Applying for a home loan today sure isn't what it used to be. Buyers who would have qualified just a year or two ago are now facing rejection, but all hope is not yet lost. If you find a home you love offered by motivated sellers, your real estate representative may be able to negotiate a lease-to-own option.

Usually, a portion of the monthly rent paid goes into escrow, where it accumulates for the eventual downpayment. It's a fairly painless way to save up money so you can get the home you want now, even if you can't put enough down to qualify for financing. Within an agreed amount of time, usually three to five years, you will have then saved enough to secure a loan and complete your purchase.

Simply paying rent is like throwing your money away, but a rent-to-own option actually helps you build equity while you’re making your monthly payments (like a mortgage!). Many sellers find this arrangement attractive too, because it generates regular income for them in a still recovering housing market.

You might be wondering why a real estate agent would even bother to offer a lease-to-own option instead of an outright purchase, but in these cases, the agent is often paid a rental commission, and then a sales commission once the transaction has completely closed with a purchase.