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Are All Properties Rent-to-Own?

Rent-to-own, also known as rental purchase or rent-to-buy, is a type of legally documented transaction under which tangible property, such as furniture, consumer electronics, motor vehicles, home appliances, real property, and engagement rings, is leased in exchange for a weekly or monthly payment, with the option to purchase at some point during the agreement. by Welkipedia

Lease purchase agreement A rent-to-own transaction differs from a traditional lease, in that the lessee can purchase the leased item at any time during the agreement (in a traditional lease the lessee has no such right), and from a hire purchase/installment plan, in that the lessee can terminate the agreement by simply returning the property (in a hire purchase the buyer has a limited time, if any, to cancel the agreement).[1] The usage of rent-to-own transactions began in the United Kingdom and Europe, and first appeared in the United States during the 1950s and 1960s.[2] While rent-to-own terminology is most commonly associated with consumer goods transactions, the term is sometimes used in connection with real estate transactions.[3] The newest law coming into effect known as "Physical control" is a progression towards owning something such as a parcel of land.

There are different ways to buy real estate like there are different properties, and knowing the differences can help better make buying possible. When purchasing a home, there’s a number of payment or financing options that buyers can make use of. Apart from home loans, which are typically government funded or offered by private banks, there are also choices to rent-to-own or to pay via in-house financing.

Understandably, the two only respectively apply to properties put on the market as for-rent-to-own, or are brand-new and being sold by the developer. Nonetheless, these are viable options when available, often offered on properties listed for sale online or featured in housing fairs. With the possibility of a great property buying opportunity just around the corner, it is beneficial to know how either of the two can help one acquire a dream home.

Rent-to-Own Rent-to-own or lease-to-buy is an agreement that guarantees a renter the option of buying a leased property within a pre-arranged duration. Basically, it is being able to rent a home while working toward buying it later on. A well-drafted contract is a key in buying via a rent-to-own scheme, where it must be ensured that both parties agree to all terms. These include rental rates plus a rent-to-own premium, purchase date, duration of the lease term, actual sale price, and other essential clauses. Renting-to-own is suitable for buyer who cannot afford to payor a huge down-payment in one go and to save for it during the duration of the lease—which normally lasts for two or more years—while also significantly paying off a part of the property’s price, and also build their creditworthiness for a better chance of being approved for a housing loan with better terms.

An advantage of renting-to-own is that the buyer can lock the property’s present price even though the actual purchase may happen after the end of the lease term. Also, in the event that the buyer finds the property or the neighborhood unsuitable, he or she can also decide to leave the property at the end of the lease term and look elsewhere. Expectedly, there are also some caveats to renting-to-own. For one, it is commonly stipulated in most rent-to-own contracts that a lessor/buyer pay a rent-to-own premium on top of the monthly rent, and amount of which is paid towards the down-payment at the time the lessor is to buy the property. For example, if the monthly rent of a certain condo in Makati is Php30,000, the rent-to-own contract may stipulate the lessor/buyer pay an additional Php10,000 per month as a rent-to-own premium. If the lessee has paid 24 months of this premium, then that is an accumulated Php240,000, which is credited as part of the down payment.

Another stipulation of a lease-to-own contract is the possibility of premium being forfeited if the buyer/lessor backs out before the end of the lease term. In-House financing buyers who want to pay for brand-new properties in a series of installments but not go the regular route of taking out a loan from a third-party institution like banks and other lenders, real estate developers also offer in-house financing. Technically in-house financing is not considered a loan but an extended way of payment. The application is easy as developers are generally less stringent than commercial banks; with just valid identifying documents and substantial proof of income commonly enough to apply and be approved for in-house financing. It must be kept in mind that this usually applies to pre-selling projects, but hardly for move-in-ready units. Another drawback is it commonly has steeper interest rates and shorter payment terms, which are significantly above the normal range common to banks. The duration for payment is also shorter than the usual 10 to 15 years offered by banks, and of course the up to 30 years offered by the Pag-IBIG Fund / HDMF.

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