If you have wanted to buy a house but couldn’t because your credit didn’t allow you to qualify for a mortgage, then finding the right rent-to-own program may be the right solution for you.
Rent-to-Own programs offer you the safety of being guaranteed a home at the end of the deal, so long as you do your part. It also allows you to walk away if you no longer decide to buy the home.
Let’s talk about some of the most well-known Rent-to-Own programs.
We will tell you about qualifying factors, the buying process, the leasing process, and any fees or other terms you need to be aware of.
Dream America
Dream America is for anyone who can afford a loan through Federal Housing Administration (FHA) or the Veteran Affairs Program (VA) but otherwise has other issues such as a low FICO score.
An FHA loan is a mortgage loan with looser requirements where you can qualify for a low credit score and, in some cases, a bankruptcy on your record.
VA loans are for those with an active or veteran background or their surviving spouses. While the federal government backs them, they are supplied by private lenders.
Some other requirements are:
- Income must be $4k/month
- $5,000 cash required*
- Credit Minimum of 500
- Debt-to-Income ratio no bigger than 50%
- “Buyer” must pay 1% upfront when Dream America is buying the home
- No late rent payments
- Home must be within city limits of Atlanta, Dallas, Jacksonville, Orlando, San Antonio, or Tampa
- Home cost between $150,000 to $400,000
How it works ↓
Just like any other home, you would find your “Dream” home with the help of a real estate agent.
After finding your home, Dream America will conduct an inspection and report back to you.
You can then decide whether to approve or decline the house, Dream America will follow suit, and you can continue with the process.
If Dream America buys the home, you must pay 1% of the house price.
After the purchase, Dream America then leases the home back to you for up to 12 months.
A portion of your rent (10%) is set aside to cover closing costs. You can buy the home or walk away without any penalties during this time.
If you need more time, you can extend your lease if you have not had any late payments during the initial lease period.
Check out their FAQ page if you need any more information.
Divvy
Divvy is another excellent option for a Rent-to-Own opportunity. However, there are some limits on the home you can choose because Divvy sees this process as an investment, but it is better for you in the long run.
Here are some requirements:
- A FICO score of 550. Divvy’s website noted that they use Experian, and your credit bureau may show a different score.
- A minimum income of $2,500. This could change depending on the housing market in your city.
- three months of steady income. Self-employed income might take longer to verify.
- Bank statement showing $2,000 of funds.
- Background check. Rental history and severity of any criminal activity.
How it works ↓
After reviewing your application and finances, you are assigned a budget. At this point, you and your agent can go shopping for your new home.
When you finally find your forever home, your agent will request the Divvy team to put in an offer.
Divvy will break down the cost of your rent, including your monthly savings and your buyback price.
If you decide this is something you can afford, Divvy will formally submit an offer to buy the house. Divvy will cover the closing cost, but you will be required to pay 1-2% of the purchase price.
Finally, you will do a final walk-through and sign a 3-year lease agreement with the rent price locked in.
Additionally, 25% of your rent goes towards your “home savings.” You can buy the home at any point or walk away and cash out your savings minus a relisting fee (2% of your home’s original purchase price).
Check out their Help Center for more information.
Home Partners
Finally, Home Partners is a bit stricter with its requirements than Divvy and Dream America but still allows for freedom to walk away if you feel that your home is no longer a good fit for you.
The freedom of this program comes with the “lease-option” agreement. This contract is what allows you to buy the house when you’re ready, but you are NOT legally obliged to.
Here are some requirements to be a participant in the Home Partners program:
- Minimal annual income of $40k
- Proof of income
- NO open chapter 7 bankruptcy
- No disqualifying criminal history
- Felony charge within the last six years
- Registered sex offender or predator
- Minimum 45 days to move into your home
How it works ↓
Upon approval of your application, you begin searching through Home Partner’s website database of eligible homes within your determined budget.
Your real estate agent will schedule a walk-through of your potential home.
Once you settle on a home, Home Partners determines the final rental price and the final purchase price for you to buy back your home.
Your rental price is locked in for five years maximum (3 years in Texas), during which time you can either purchase or walk away with no penalties.
If you decide to buy your house, you must reach out to Home Partners within 60 days of your desired closing date.
A new purchase price is set each year, so you must close the purchase within 30 days before your lease expires.
To find out more about the Rent-to-Own process at Home Partners, check out their FAQ page.
Final Thoughts
Each Rent-to-Own program has its own requirements and unique procedures and conditions.
Research all your options to ensure you get the best deal for your unique situation. If you decide this is not the right choice for you, it might be best to rent independently and wait for it to be the right time for you and your family.