Rent-to-Own Home Programs: How Do They Work?
Buying a home with bad credit can be challenging, but it's not impossible. More recently, several forward-thinking companies now offer innovative programs that can help you achieve the dream of homeownership even if you have bad credit. They allow you to start building equity in a home right away while renting it, giving you time to improve your credit score and save for a down payment.
Home Partners of America and Verbhouse and Divvy Homes are some of the more popular rent-to-own companies throughout the United States, buying a home of the buyer’s choosing while renting it back to them, with the goal of building credit and saving for a down payment.
Divvy Homes is the company that our team has used most often here in the St. Louis area and is the most prevalent one in the St. Louis Metro area real estate market. Therefore, the focus of our blog will be on the rent-to-own program with Divvy Homes.
Here's how the program works with Divvy Homes:
- You apply to Divvy Homes and get pre-approved for a certain amount based on your income and credit score.
- With the help of your REALTOR®, Divvy Homes will then help you find a home within your budget and pre-approved amount.
- You will then pay a small down payment and start renting the home from Divvy, with a portion of the rent going towards building your down payment for the home.
- After a period of time, typically 2-3 years, you will have built a down payment and improved your credit score, making it easier to qualify for a traditional mortgage.
- Divvy will then sell you the home at the pre-agreed upon price, and you become the homeowner.
It is important to note that Divvy Homes operates in a limited number of cities around the United States, and availability may vary. While Divvy Homes may not be available in all areas and may not be suitable for everyone, it is an option that can help you overcome the challenges of buying a home with poor credit.
It's worth noting that these types of programs may require a higher initial deposit and may have a higher rent rate than the market rate, as well as other contract terms which should be considered before signing up for the program. It's important to carefully review the terms and conditions of these programs before signing up, and to consider the fees and long-term financial implications. Renting-to-own is not the right financial solution for every buyer, but for would-be buyers who intend to remain in the home for the long-term and are on a path of financial recovery, it is something to investigate to see if it is the right-solution for them.
Minimum Credit Score Requirements
Having a good credit score is a key factor in being approved for a rent-to-own program like with Divvy Homes.
According to Divvy Homes' website, they typically require a minimum credit score of 600 to be considered for their program. However, it's important to note that this is not a hard and fast rule and each applicant's creditworthiness is evaluated on a case-by-case basis.
If your credit score is lower than 600, don't be discouraged. Divvy Homes works with each applicant to understand their individual circumstances and may still approve you for the program. Additionally, you can take steps to improve your credit score such as paying off debt, correcting any errors on your credit report, and making sure to pay your bills on time.
It's also worth noting that Divvy Homes also looks at other factors such as income and employment history when evaluating an applicant's creditworthiness.
Interested? Here are your next steps.
Below are the steps a future home buyer should take to start the process with Divvy Homes:
Step 1: Research
Before diving into the home-buying process, it's important to do your research. Learn about Divvy Homes and how their program works. Understand the terms and conditions of their program and see if it aligns with your needs and goals. Additionally, research the housing market in the area where you're looking to buy a home. This will give you an idea of what to expect in terms of home prices and availability.
Hit the easy button and simply give our team a call; we will walk you through a buyers consultation that covers all of this and more!
Step 2: Determine Your Budget
Once you have a good understanding of the program and housing market, it's time to determine your budget. Divvy Homes’ Rent-to-Own program, allowing you to rent a home with the option to buy it later, is a great way to build equity in a home while also saving for a down payment. It's important to understand the costs associated with this program and make sure it fits within your budget.
A local real estate agent can help you navigate the paperwork and ensure that everything is in order. They can also help you understand the terms and conditions of Divvy Homes' rent-to-own program and make sure that you understand all of the costs associated with the program.
Step 3: Find a Home
Now that you have a good understanding of the program and your budget, it's time to find a home. Divvy Homes has a wide variety of homes available for rent-to-own in different areas. Browse through their listings to find a home that meets your needs and fits within your budget.
Your REALTOR® has access to a wide range of listings and can help you find a home that fits your needs and budget. They can also give you an idea of what to expect in terms of home prices and availability in the area where you're looking to buy.
Step 4: Apply
Once you have found a home that you're interested in, it's time to apply. Divvy Homes has a simple online application process that can be completed in a matter of minutes. Make sure to have all of your information ready, such as your income and employment information.
Your REALTOR® can help you understand the process and represent your best interests throughout the negotiations, through the contract-to-close process, all the way through closing.
Step 5: Close the Deal
After your application is reviewed and approved, it's time to close the deal. Divvy Homes will work with you to finalize the terms of the rent-to-own agreement. Once the agreement is signed, you'll move into your new home and start building equity while renting.
Rent-to-own programs like Divvy Homes, can be a great option for people with bad credit who want to buy a home. These programs allow you to rent a home with the option to purchase it after a certain period of time, giving you the opportunity to build your credit and save for a down payment. By considering unconventional options, like Divvy Homes, you can potentially achieve your dream of homeownership sooner.
If you are interested in using a rent-to-own program in the St. Louis area, fill out the contact form below to first contact our team. We'll help you navigate the process!