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The model offers an alternative to traditional home ownership but has some drawbacks.
Home prices are rising faster than ever in 2021, mortgage rates are at their highest since 2008 and limited supply means buyers are scrambling for whatever they can get.
But an alternative option that offers buyers a different path to homeownership is gaining momentum, according to the newspaper.
rent to own sale
It is a model in which customers pay monthly rent, part of which becomes the owner of the property.
After a certain period, they can either buy the property directly or continue the monthly payments.
The movement is fueled by fintech startups like Divvy, Verbhouse, and ZeroDown, which buy homes for cash and rent them out to customers through leases.
This is how it works
At Divvy, a standard agreement:
- Requires an upfront payment of 1% to 2% of the price of the house, which is used for the deposit when tenants decide to buy
- Bills monthly rental fee plus building savings fee (i.e. your deposit savings account)
- Locks in a future purchase price; However, tenants can opt out of the purchase and get away with building savings funds
Divvy’s program is designed for renters to “become mortgage-eligible in three years,” according to the company’s website.
But leases are controversial
They used to be predatory, targeting low-income black and brown shoppers.
Critics also point to other downsides:
- Rent-to-own encourages businesses to spend hard cash and compete with individuals for limited housing stock
- House price freezes could be bad for buyers if the market falls
- There is no guarantee that tenants will be eligible for a mortgage after the rental period has expired
For its part, Divvy says that about half of its customers can buy their homes. But the market probably wouldn’t be as competitive if these companies weren’t buying homes in the first place.
Reference Source: The Hustle
