CityPress - - Business & Tenders -

Sello writes:

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 (ren­

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.

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