Can You Rent to Own with No Money Down?
August 7, 2017 by Marty Orefice | Credit, Financing, Rent to Own
You technically can rent to own with no money down. However, you do need to give the seller something of value to cover the option fee.
An option fee gives you the option to purchase a home that you have leased. It works unilaterally. You have the option of purchasing and the seller must sell to you.
Traditionally, an option fee is 1-5 percent of the agreed upon purchase price of the home. So, if you're renting to own a home that's worth $100,000, your option fee is between $1,000 and $5,000.
If you don't pay an option fee, you will not be given the option to purchase the home and thus you are not renting to own you're just renting. Even then, most landlords require a security deposit and/or first and last month's rent.
How to Rent to Own with No Money Down
So, how do you take advantage of the miraculous technicality above and rent to own with no money down? You give the seller something else to cover the fee.
What Else Can You Use as an Option Fee
- You can use your skills as a carpenter/electrician/handyman/etc. You and the seller can make an agreement that goes something like this.
The buyer, John Smith, will repair the electrical wiring at 555 SW Elm Street by August 7, 2019, for a $2,500 credit towards his option fee. Should John Smith buy the home, the seller, Jane Doe, will credit the amount off of the purchase price.
- You can use a boat, car, motorcycle or some other item of value. You and the seller can make an agreement that goes something like this.
The buyer, John Smith, will use a boat as his option fee for the home located at 555 SW Elm Street. John Smith and the seller, Jane Doe, agree the boat will cover the option fee. Both parties agreed the boat is valued as a $3,500 credit toward the option fee. Should John Smith buy the home Jane Doe will credit the amount off of the purchase price.
You may also be able to work out the return of the boat instead of the credit on the purchase price.
- Goods from a store you own. You and the seller can make an agreement that goes something like this.
The buyer, John Smith, will give the seller, Jane Doe, $3,000 worth of merchandise from Smith Hardware that will be used to make repairs to the home located at 555 Elm Street. John Smith and Jane Doe agree that the merchandise will equal an option fee credit of $3,000 to be credited off the purchase price at the time of sale.
- Get creative with it. You can honestly use anything that you and the seller agree on as the option fee.
How Option Fees Work
You pay the option fee when you sign the contract. Then, you follow through with the lease.
At any given point during the lease, you can choose to purchase the home.
If you do purchase the home, the option fee is credited toward your purchase. So, if you paid a $3,500 option fee you can use that amount as part of your down payment for the home.
If you do not purchase the home, the seller gets to keep the option fee. This is the factor that makes option fees different than security deposits.
The option fee gives you the right to purchase the home. You only get it back if you purchase the home. The option fee isn't supposed to cover any damages that you inflict on the property.
It is supposed to cover the time the seller lost by keeping the property off of the market for you.
If you provide labor on the home or supplies for fixing the home, the seller is better off because of it.
While cash can will definitely make up for the seller's lost time, a boat would too…don't you think?
