HOW CAN I RENT TO BUY?
I would like to take up a rent-to-buy option without going through a bank. Is this possible?
City Press replies:
The idea behind the rent-to-buy option is that it offers consumers an opportunity to prove their ability to afford a home before buying. For example, if you made an offer to purchase a home and your mortgage was declined due to your credit record, you could apply for an option to buy the property at a later date – once your credit record is repaired – and rent the property in the meantime.
You in effect fix the price of the property and the option period can be anywhere from six to 24 months.
The agreement is done through a company called Rent2Buy (rent2buy.co.za).
During the rental period, you will pay rent equivalent to the mortgage instalment, which would demonstrate that you can afford the instalments and thereby improve your chance of receiving a mortgage.
This amount would be higher than the actual rent, and the additional amount could be transferred back to the purchaser to use as a deposit when applying for the mortgage.
Rent2Buy uses the following example: if the property price is R500 000, the average rent charged would be 0.6% a month of the value of the property, or R3 000. Within the rent-to-buy option, the tenant would pay 1% a month, or R5 000. The additional amount of R2 000 is credited as a deposit for the benefit of the purchaser once the transfer takes place. Over 12 months, this would amount to R24 000.
The downside is that there are fees to pay, which include a rental deposit of one to three months depending on your credit profile. You will also pay a rental insurance premium of 2.5% of the rent, plus a R50 admin fee each month. This would add R175 a month to the above example.
You will still need to apply to the bank for a mortgage once you are in a position to buy the property.