Everything You Need to Know About Rent Credits
Rent-to-own homes (also called lease-option homes) don’t always involve high monthly payments as some people think. Typically, the elevated price is a result of rent credits. Although payments are often used to build credit, the rental credit is one of the optional factors of most rent-to-own contracts. Read on to learn more.
Rent Payments and Rent Payment History
Rent payments act as an auto loan in some cases, especially when you’re making your payments on time. Timely rental payments can ensure that your rental payment history will reflect positivity all the time. This plays a key role in establishing or building a good credit history. You might be required to verify your payments with either the landlord or property manager.
There is a wide variety of credit scoring models. While most models incorporate rental payments, these payments are not always included in calculations. Either way, potential creditors look favorably on tenants with a good solid history.
So if you have a positive rental history, make sure it is included in credit reports by the credit reporting agency. Otherwise, get your payments (through third-party services) reported to credit bureaus at your earliest convenience.
Those who can’t report their payment history to the credit bureaus should try to build credit by using secured credit cards. Choose a secured credit card that doesn’t require a credit check.
Types of Rent Credits
Do you want to rent? Be sure to choose a type of rent credit that works best for you. Basically, there are 3 known types:
- Premium payments
- Premium matching and
- Traditional rent credits
All of these serve different purposes and come with unique terms of services. Nevertheless, they all share a common bond: The buyers can keep their money when purchasing the house.
If they decide not to buy the home at the end of their lease term, their funds (initial and rental payments) will be kept by the seller. The money will be held in escrow all the while. It will serve as compensation for the seller in case the renter doesn’t purchase the home.
Let’s shed some light on each type of rent credits to help you make the right choice.
Premium Matching
Premium matching is a mixture of premium payments and traditional rent credits. The homebuyer is required to make premium payments besides paying what is the fair market. Every premium payment is contributed to an escrow account.
The goal is to balance the interests of the seller and the buyer. As a buyer, you need to consider your personal finances before accepting premium matching. Think about how much of your personal income will be allocated to housing.
Premium Payments
The premium payment is an additional amount of money the seller pays every month (during the period of 12 months or more) while pocketing the full value of rent. Most homebuyers avoid this option so as not to risk the loss if they decide to not buy the home.
You’re advised to consult a financial advisor who spent many years in property management and real estates sales before agreeing to premium payments.
Traditional Rent Credits
The sellers give back a certain percentage of rent (known as credits) to tenants in traditional RTO agreements. While this is the most favorable option for buyers, the sellers are only willing to accept traditional rent credits in order to lock somebody into a sale or when their homes have been on the market for quite a long time.
Related: How rent to own works?
Rent-to-Own Negotiation Process
Maybe you will be expected to go through the negotiation process when renting a home. While some sellers and buyers don’t use any of their credits, you can always negotiate to get one if you think it will be beneficial to you.
Remember that neither party is supposed to benefit from the rent-to-own deal. There should not be winners and losers, rather, it should be a win-win situation for the buyers and property owners.
