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How Does Rent-to-Own Work sign on the wooden plate.

Rent-to-own Homes: Finally, A Real Solution

Rent-to-own Homes

For many who are struggling with past credit issues or who don’t yet have enough money for a down payment, rent-to-own homes sound like an ideal option.

Unfortunately, they rarely are, which we will explain in this article. 

But there is good news. We’ve discovered one option that appears to be a viable option for those wanting to capitalize on the possibility of rent-to-own homes without becoming victim to the scam that most people fall into when they get into a rent-to-own home agreement. Scroll down to see that option.

The Rent-to-own Homes Promise

The promise of rent-to-own homes sounds compelling: instead of renting, where you get no equity in your home and any increase in that home’s value goes directly to the owner (and usually ends up in your paying above-market rental rates,) part of your rent goes towards the purchase of that home. So, over time, you’ll be able to own the home you’re renting.

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The reality is most of the rent-to-own homes industry is basically a scam:

Most Rent-to-own Home Contracts Expire Worthlessly

Only 4% of rent-to-own homes in the U.S. end up with a sale to the renter. That means that the people selling you the rent-to-own contract are making all the money, you’re getting all the disadvantages.

Rent-to-own Homes Require Higher Rents

You, as the renter, have to pay higher rents than would be required for that same home without a rent-to-own agreement.

What makes it worse is that not all of that extra rent goes towards the purchase of your home. Let’s say the home would normally rent for $1,700 per month. If you used a typical rent-to-own contract, you probably wouldn’t be paying $1,700, rather you might be paying somewhere around $2,000 per month.

But here’s where the real problem comes in – only $200 of that extra $300 will probably be applied towards purchasing the home. In other words, your landlord is charging you $100 per month to help you save towards your down payment.

You’re Saving Very Little

The amount of rent applied towards the purchase of the home is almost always incredibly low.

Let’s say you’re paying $2,000 rent on a home worth $400,000, and $200 is being applied towards the purchase of the house. In a year, you’ll have paid $24,000 in total rent, of which only $2,400 is credited towards your down payment. Congratulations, in that year you’ve just built up a measly 0.6% towards your 20% down payment.

At that rate, it will take you 33.3 years to achieve a 20% down payment. But you’ll never achieve that because most rent-to-own contracts last no more than 5 years.

Most Rent-to-own Contracts Require A Significant Non-refundable Fee To Get Started

Most rent-to-own companies charge a non-refundable fee to enter the contract – fees of 2% to 7%. 

On a $400,000 home, that means you’re paying out $8,000 to $28,000 in non-refundable upfront fees. Those fees can usually be better saved for a down payment.

And don’t forget, if you’re one of the 96% of people who don’t end up converting their rent-to-own agreement into a purchase, you lose all that money.

You have to pay for repairs and maintenance

Unlike other rental agreements where the landlord fixes things, most rent-to-own agreements put that responsibility (and those costs) on you.

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Late or Missed Payments May Void The Entire Deal

If you’re in a normal rental deal and have to make a late payment, you’ll probably have to pay a late fee.

But many rent-to-own contracts state that if you’re ever late on a rent payment, you lose all the money you’ve saved towards your down payment.

Most Rent-to-own Deals Are A Scam!

In short, for most people, rent-to-own home agreements are not a good idea. (By the way, in case you’re curious, the same thing applies to TVs, furniture, etc. The entire industry is basically a way for investors to get rich by preying upon those without the cash they need to get what they want.)

But What if There Was a Rent-to-own Company That Wasn’t a Scam?

Good news, we’ve found a company that’s running rent-to-own the way it should be run. A company that’s helping people who can’t quite qualify for a loan right now to get into a home and build up real equity in the meantime.

The company is called Halo. (http://haloprogram.com) (Note: FindMyWayHome.com has received no compensation for this review.)

Halo specializes in working with two types of people who want to get into a home but don’t yet qualify for a mortgage:

  1. People who have some issues with their credit score and need time to work them out

Many people have had financial difficulties that have negatively impacted their credit like bankruptcy, foreclosure, divorce, medical issues, a period of unemployment, etc. Even though they’ve got the money for a downpayment, these negatives are preventing them from getting a mortgage.

As long as you’ve got a credit score of at least 480, and the money for a downpayment, Halo can help you get into your house now and will give you a personal Halo Guide counselor to help you get your credit to the point where you can get a mortgage to pay for your house.

  1. People who have clean credit but don’t yet have enough saved for a down payment.

    If you have a credit score of over 600, Halo will help you get into a house immediately, then will set aside a substantial portion of your rent towards your down payment. 

Halo’s goal is to help you get your mortgage within 12-36 months. 

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How Halo Works

When you apply to Halo, you’ll receive a roadmap to get your mortgage within 12-36 months. This road map includes a pre-approval so you know what you can spend on a home. 

You then shop the market and find the home you want, which Halo will pay for with an all-cash offer. At that point, you’ll pay your up-front payment (1.5 – 3.5% of the price), and they’ll do a full home inspection and appraisal to make sure this home will be a good value for you.

In most cases, you can move in within a few weeks. Then you’ll make your regular monthly payments while working with your Halo Guide to qualify for your mortgage as quickly as possible, with the goal of that happening within 12-36 months.

Halo is currently available in 14 states and plans to expand quickly to other states in the U.S.

Why We Think You Should Consider Halo Over Other Rent-to-own Homes

  1. Significantly higher success rates. Unlike traditional rent-to-own programs, which result in only 4% of people being able to buy their homes, Halo has a 60% success rate.
  2. You get a Halo Guide, a counselor who is dedicated to helping you fix the things that are preventing you from getting your mortgage.
  3. You choose the house – unlike many programs where you’d be paying above-market rents on homes in their inventory, you choose which house you want to buy and pay market-level rents.
  4. Halo wants you to succeed in your dream to own your own home. Don’t you wish everyone worked this way?

Is Halo Right For Me?

It may be. Here are the people who it is ideal for:

  1. People who have solid finances today but have had financial issues in their past which will be dropping off of their credit reports due to the passage of time within the next 1-3 years.
  2. People who are almost there in saving up for their down payment but want to get into a home quickly.

If you fit these criteria, you may want to consider Halo at https://haloprogram.com

Have other questions about qualifying for a mortgage?  Ask a question, choose an expert, or leave a comment below!

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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