Select Page

Everything You Need to Know About Rent Credits

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. […]
how does rent to own home work
11.15.2020
Home » Everything You Need to Know About Rent Credits

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:

  1. Premium payments
  2. Premium matching and 
  3. 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.

Related Posts

Section 8 Rent To Own Houses

Section 8 Rent To Own Houses

Can It Help You Buy a Home? The Section 8 Housing Choice Voucher Program gives low-income renters assistance with their monthly rental costs. The program eases the headaches of renting and eases concerns of not being able to purchase under Section 8. With approval...

Can You Rent to Own a Foreclosed Home

Can You Rent to Own a Foreclosed Home

Looking for foreclosed homes that come with a lease option? You will have a hard time finding a rent to own agreement that involves the foreclosure process. Even if you find a rent to own deal for a foreclosure, it is probably a scam. Be wary of scams and homeowners...

Who Pays Taxes On Rent to Own Home

Who Pays Taxes On Rent to Own Home

The homeowner is supposed to pay the property taxes in case of renting. However, it’s not always clear who is the owner when it comes to renting to own. The tenant (potential home buyer) and the current owner (landlord) come to a rent-to-own agreement. Even though you...