Friday, August 24, 2012

Why Own to Rent is Not the Best Choice for You!


Bank of America is trying a new approach to help people get through the recent economic troubles, but where rent to own housing was such a success, the new own to rent housing is looking like it’s not as popular – and certainly not the kind of thing that a wise investor would consider!

The housing market has been a bit tight recently, and the truth is that millions of people around the country have felt the crunch as the economic situation slowly wobbles its way to recovery after the Great Recession of 2008. Though many believe that the situation has been left far behind, a closer look at the financial markets shows that things have only begun to improve in the last few months. While the housing market has taken a turn for the better, things haven’t quite yet stabilized.

Bank foreclosures have been higher than normal in the last few years, and the rent to own houses arrangement has proven to be a boon for all. Many people were able to live in homes that they currently were renting, but they were able to tack on a rent premium that went towards the closing costs of their new home once their rent agreement expired. This was a huge help for people who were recovering economically, but who were unable to purchase their dream home at the moment. They could rent the home, and thus put aside towards buying it in the future. Most of these rent to own leasers ended up with a bit more equity on their home than they expected.

However, the new Bank of America initiative is actually the opposite, and the new "own-to-rent" option is taking a lot of flak from real estate professionals around the country.

Where rent to own housing enabled people to rent houses in order to buy them from their owners, own to rent housing is exactly the opposite. The owner of a house at risk of bank foreclosures is actually able to sell the deed to the bank, but they will be able to continue living in their home. They will basically rent the home from the bank that was about to foreclose on them, and they will no longer be the owner of their house.

No doubt you can see why this is such an issue for so many. While the rent to own option encouraged people to move into the house that they would buy within the next few years, the own to rent option is basically the bank saying, “Sure, we own this house, but we’ll have pity on you and let you continue living in it.” The house that once belonged to the occupants is now owned by the bank, and they are living in a home that they now have to pay rent for.

The bank is claiming that this option will allow those that are suffering from economic hardship to be able to continue in their current homes, ensuring that they aren’t evicted just because they are unable to pay the mortgage on their homes. The option offered by Bank of America is available to those that are more than 60 days behind on their mortgage payment, as well as for those that owe more on the mortgage of their home than they have in home equity.

This option has received mixed response from the public, though the majority of experts agree that this own to rent option is not the best choice for most. While it does give those with economic hardships the ability to continue living in their homes, it often means that they will continue to live beyond their means in a home that they were unable to afford in the first place. The bank has bailed them out, but they will continue to dig themselves deeper into financial holes.

On this topic, Jack Philson of RealtyStore.com commented, “While this allows both lender and borrower to avoid foreclosure proceedings, it's sad to see people deprived from their home ownership dreams. We'd encourage banks to consider more of a lease option approach, where the now-tenant would have an option to buy his/her home back in two or three years through a balloon payment, essentially a second down payment."

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