Key Considerations

There are a few key points you must understand prior to applying for the Rent to Own, better known as the Lease with a right to Purchase Program. These points include how the rent and security deposit work, how to select your home, accepting the lease & purchase agreement and how the math is calculated.

Rent & Security Deposit

• No down payment required
• Two months of security deposit and first month rent is required
• Verification of first month’s rent will occur prior to move in date

Lease

Your lease term is for one year and will automatically renew every year, up to three years, as long as you are in compliance with the lease and all agreements. Before the end of each lease term, you will have the right to give notice to not renew the lease for the next year. You are not required to renew the lease after the initial year. If for any reason you decide to vacate the home at the end of your lease term and you’re in compliance with the lease, then your full security deposit will be returned.

Rent & Security Deposit

• No down payment required
• Two months of security deposit and first month rent is required
• Verification of first month’s rent will occur prior to move in date

Lease

Your lease term is for one year and will automatically renew every year, up to three years, as long as you are in compliance with the lease and all agreements. Before the end of each lease term, you will have the right to give notice to not renew the lease for the next year. You are not required to renew the lease after the initial year. If for any reason you decide to vacate the home at the end of your lease term and you’re in compliance with the lease, then your full security deposit will be returned.

Selecting Your Home

Every home on MLS must meet the following criteria in order to be purchased by our partners. This list will be provided to you when shopping for your future home.

• Rental ranges from $1,500 to $4,500
• 3+ bedroom/ 2+ bathroom minimum
• Single Family Home or Townhome
• Traditional sales only (no short sales or banked owned/REO)
• Property must be located within our approved communities
• Property cannot be located under high tension power lines, airport flight paths or against railroads and highways.
• Values between $200,000 to $500,000

Purchase Right Agreement

What is the Purchase Right Agreement? It’s the agreement that gives you the right to purchase the home at a Pre-defined price for each year of the Lease, as long as you are in compliance with all agreements. This agreement does not obligate anyone to buy the home. Your agreement will be in effect as long as the lease is in effect and all agreements are in compliance. You will have an opportunity to review all documentation and you are encouraged to consult legal counsel to review documents prior to signing them.

The Math

The goal is to get you into your future home and purchase it when you’re ready – but before you proceed forward you should review the market.
Austin, Texas home prices continue to increase in 2017 and 2018 is predicted to climb higher at a “5% growth in price” per Freddie Mac.

ABOR, Austin Board of Realtors, stated in 2017 “Central Texas housing market just experienced the strongest summer selling season on record”.

Zillow also states “home values have gone up 8.3% over the past year and predicts they will rise within the next year”.

Of course we can’t predict the future but we’re sure you can research the facts or the above statistics to determine the direction of the market.

Right to purchase price increases

Each year, the right to purchase price will increase by 3.5% in the State of Texas.
In this example, if the Total Cost of the home is $200,000 and the Right to Purchase increases by 3.5% (i.e., Prior Year Purchase Right Price X 1.035)* then the Purchase Right Price for Years 1-3 is as follows:

Year 1…………………….$207,000
Year 2…………………….$214,245
Year 3…………………….$221,744

As you can see, a 3.5% increase in much better than a 8.3% increase. There will be additional costs you will incur if you choose to exercise the purchase such as closing costs to purchase the home including transfer taxes, attorneys’ fees, title insurance, and the cost of a mortgage loan. Therefore, your actual total cost to exercise the purchase will vary.

Yearly Rent Increases

In the event you are not ready to purchase your future home and decide to keep renting then your rent will increase by no more than 3.75% yearly. Currently this rental rate is below Austin, Texas average of 4.2% per CultureMap. They anticipate an increase of 11% from 2017 to 2020 putting Austin in the top 25% largest rental increases in the United States.

Example: If the monthly rent for year 1 is $1,400 per month, the increase for the next year is $50/month (i.e., $1,400 x 1.0375)*.

Monthly Rent
Year 1…………………….$1,400
Year 2…………………….$1,450
Year 3…………………….$1,505

Total Cost

Each year, the right to purchase price will increase by 3.5% in the State of Texas.
In this example, if the Total Cost of the home is $200,000 and the Right to Purchase increases by 3.5% (i.e., Prior Year Purchase Right Price X 1.035)* then the Purchase Right Price for Years 1-3 is as follows:

Year 1…………………….$207,000
Year 2…………………….$214,245
Year 3…………………….$221,744

Total Cost is the price our partners pays for the home, closing costs, make ready and repairs/maintenance costs. This is used to determine your Right to Purchase price.
Purchase Price…………………………………. $200,000
Closing Costs1……………………………………$3,000
Make Ready and Repairs/Maintenance Costs…..$7,000
Total Cost……………………………………….$210,000

1 includes costs such as title insurance, transfer taxes, attorneys’ fees, other acquisition costs, etc.