Rent to Own in Arizona

6 Keys to Rent-to-Own Success

If you’re considering the rent-to-own route to homeownership, then you’ll certainly want to find the right home and program for you.

The key to rent-to-own success isn’t so much the program you choose, but how you (the buyer) and the landlord (seller) navigate the process.

In fact, the success of any rent-to-own situation relies on the tenant acting like a prospective homeowner and the landlord acting like a seller. In this guide, we’re outlining how both parties can navigate this process together and ensure a successful sale.

Table of Contents

Table of Contents

1. Care for the property as if it’s your own.

The primary goal of rent-to-own is for the tenant to buy the home by the end of their lease agreement. That’s why it is in the tenant’s best interest to care for the property as if it is already their own.

Once you find a rent-to-own home and sign the lease, you’ll want to invest in caring for the property and landscape. Not only does this mean keeping the property in great condition, but also making improvements to enhance its value.

Doing so is beneficial to you as a prospective homeowner because you will then have a home you can be proud of. It also communicates to the seller that you are serious about the process and have every intention of following through with the purchase. In most cases, the improvements made will add value to the property, and that additional value belongs to the tenant. This is not the case in a lease option, so it is important to understand which type of contract is involved, and what individual rights are associated.

2. Monitor your credit score on a monthly basis.

With rent-to-own, you delay purchasing a home until your credit score is up to snuff and you have enough money saved for the down payment. So, while you have bought yourself some time, you should be very intentional about improving your credit score throughout your lease.

We highly recommend that you monitor your credit score on a monthly basis as you work toward your goals. Be sure to consider what your target credit score is in order to qualify for your preferred mortgage loan.

To improve your credit score, you should:

Monitor your score using tools like CreditKarma.com
Remain current on your monthly credit payments
Pay off all bills and credit cards in full and by the deadline
Keep purchases below 30% of your total credit limit
Pay off and/or pay down any outstanding debts
Do not add additional credit accounts, unless your credit score is adversely affected by insufficient credit vs poor credit.

You may also want to consider rent to own credit repair options to improve your credit over time. Having a higher credit score will help you qualify for better mortgage loans and terms.

3. Work closely with your lender.

Before signing your rent-to-own home lease, you should have an idea of who your preferred lender will be, and what terms you are looking for, when it comes to your mortgage loan.

Throughout your lease, work closely with your lender to make sure you are still on track to qualify. This ensures that there are no hiccups when it comes time to buy the home. Fewer surprises mean fewer delays when you’re ready to purchase the property.

You’ll want to discuss which type of loan is best for you, what the interest rate and annual percentage rate will be, how much of a down payment is required, and what the expected turnaround time is when it comes to funding.

Here are some things to consider when working with your lender:

What are the current rates and how will that affect my monthly payment?
What are my current debt ratios and what can I do to improve them?
What fees will my lender charge?
What type of programs can my lender offer?

4. Understand the types of loans you qualify for.

When it comes to buying a home, knowledge is power. The more information you have about what you qualify for, what terms are outlined in your rent-to-own agreement, and what’s expected of you during the process, the easier the process will be.

We want to lead you to rent-to-own success, so we want to emphasize the need for you to thoroughly understand the types of loans you qualify for. This will help ensure that you pick the right option for you and are prepared with adequate funding when it’s time to buy your home.

Some of the different types of loans you may qualify for include:

Conventional loan: a mortgage loan that is not guaranteed/insured by any government agency, and typically has a fixed rate and terms.
Fixed-rate loan: a type of conventional loan that assigns a single interest rate and monthly payment across the duration of the loan.
Adjustable-rate mortgage (ARM): this type of loan offers mortgage interest rates that are typically lower than what you’d get with a fixed-rate mortgage across a set a period of time, such as 5 or 10 years.
Federal Housing Administration (FHA) loan: a government-backed loan where you can put as little as 3.5% down, compared to the 20% required for traditional loans.
VA loan: a mortgage loan for United States military members and veterans where you can purchase a home with no down payment and no mortgage insurance requirements.
USDA loan: a government-sponsored home loan suited for families living in rural areas, where the government finances 100% of the home price for USDA-eligible homes.

Know which types of loans you qualify for and what the terms are so you have the information you need to navigate the home buying process with ease.

See what you qualify for with our free Mortgage Calculator.

5. Keep track of your debt-to-income ratio.

Mortgage lenders will need to assess your ability to repay a loan before they lend you the money to make your home purchase. One of the ways they determine this is by looking at your debt-to-income (DTI) ratio.

A debt-to-income ratio is calculated by dividing your monthly debt payments by your monthly gross income. The result is a percentage number that lenders look at to see how well you manage your debts.

With that in mind, you’ll want to keep track of your debt-to-income ratio so you can improve your chances of qualifying for better loan terms. To improve your debt-to-income ratio, pay down outstanding debts and pay your ongoing bills in full and on time.

Do you know what your debt-to-income ratio is? See if you qualify for a rent-to-own program by taking our quiz.

6. Create a savings plan for the down payment and future expenses.

By working closely with your lender, you should get an idea of how much you will have to save up for a down payment. At the same time, we recommend saving up a bit of a nest egg so you are prepared for future expenses.

Read: Finding Home Down Payment Assistance in Arizona

Your top priority should be to improve your credit score by paying off any outstanding debts. Then, set aside money every month to start saving toward the down payment. Also consider how much money you will need when it comes time to re-paint your home, do repairs, purchase new furniture, etc.

Here are some tips to help you save for a down payment:

Transfer a set amount of money into a savings account every month. Most banks will let you set up automatic transfers.
Skip vacations during the course of your rent-to-own lease.
Decrease your expenses by not going out to eat or spending money on unnecessary shopping.
Sell some of your investments for extra cash.
Get a second job or side gig to increase your income.

Saving for a large down payment may seem intimidating, but chip away at it every month (or even every week) and you will start seeing the savings pile up. This is a much better approach than waiting until you are close to the purchase date.

Rent-to-Own Success Stories

How A Lease Purchase Secured A Family’s Financial Future:

Sandy was a recently divorced mother of two. She saved just enough money for a down payment only to find out that fallout from her divorce left her personal credit in tatters. Desperate to establish stability for her children and keep them in the same school, she reached out to Century 21 Northwest. The experienced Realtors were able to pair her with an investor, and structured a lease purchase agreement. She moved into the home close to her work and kids’ school, and in two years she was able to restore her credit and close on the home. In that time the market had risen 20%, but since the equity belonged to her, in accordance with the contract when she bought the home, it was worth over $40,000 more than she had paid.

How A Vet Got The American Dream:

Jim is a salt of the earth soldier. He spent two tours in the Middle East serving his country. Upon his return he had an accident and wound up exhausting his savings. He wanted to provide a home for his wife and children, and even though he had a good job and credit, he had very little money saved. He met an experienced Century 21 Agent who helped him get qualified for a no money down VA loan. Together they found the home of Jim’s dreams and he was able to move in 30 days later. Head down the path to rent-to-own success by following the above 6 tips and reading success stories from homebuyers like you. The more information you have about the process, the easier it will be to close on your new home in record time.

Still have more questions about rent-to-own in AZ? Contact our team at Century 21 Northwest Realty and we’ll be happy to help!

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