How do I qualify for rent-to-own?

Rent-to-own is a newer financing option that allows aspiring homeowners to rent a property they plan to buy in the future.

Home Ownership
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by
Erin Howell

How do I qualify for rent-to-own?

Rent-to-own is a newer financing option that allows aspiring homeowners to rent a property they plan to buy in the future. 

So you're exploring the available options in Australia to become a homeowner - exciting!

For Australian first home buyers, saving up for a deposit is one of the biggest hurdles when getting into the property market. Almost 2 out of 3 Australians don't think home ownership is an option for young adults anymore.

Refresh: How does Rent-To-Own work?

Rent-to-own (sometimes called a rent-to-buy scheme) is a financing option that allows aspiring homeowners to rent a property they plan to buy in the future. 

Rent-to-own services can help you save for a deposit and benefit from capital gains in your home, which can be more beneficial than just renting and saving. Rent-to-own agreements are an on-ramp to a mortgage. At the end of the contract, you'll likely still require financing from a bank. 

Here's how it works:

  • You can choose almost any home on the market. You enter into a purchase agreement with a company that'll assess your financial situation and tell you how much you have to go shopping for a home. After you make your choice, the company will take care of the buying process and set up a contract with the option to buy the property. 

Rent-to-own contracts last anywhere between two to ten years and will differ depending on the company you use. With OwnHome, it is a 2-7 year period. During this time, you will pay rent and an option fee which will build up a security deposit. Your security deposit accrues and eventually comes off your pre-agreed purchase price at the end of your agreement. 

If your financial situation changes within this period and you choose not to purchase the home, you can choose not to go ahead with the property purchase. However, this may be subject to fees or a process to get the home sold to another party. The fees and process will differ depending on who your rent-to-own provider is. 

At OwnHome, we are pioneering rent-to-own in Greater Sydney, Wollongong, Newcastle, Brisbane and The Gold Coast. Learn more about rent-to-own, the pros and cons and how rent-to-own works.

At OwnHome, we also cover the costs of your home for the duration of your rental agreement. Including council rates, strata fees, some maintenance activities and repairs.

At OwnHome, we use a simple five-step process. 
The 5 steps from rent-to-own with OwnHome.

Qualifying for Rent-To-Own

Rent to own is suitable for most people in Australia. However, every company will have different criteria. 

At OwnHome, we want to help as many people as possible buy their dream homes and enter the property market. But we still have some requirements to ensure that rent to buy is a good fit for you long term. 

How to qualify for OwnHome: 
  • At OwnHome, we require a household income of over $180,000 in NSW and $150,000 in QLD.
  • People that are willing to seek independent legal advice and think deeply about whether OwnHome and a rent-to-own agreement are right for them. 
  • Savings - while you don't need the traditional 20% deposit, stamp duty and fees. At OwnHome, we have a 3% upfront fee, where 1% of this goes immediately into your  security deposit , which comes off your purchase price at the end of the agreement.
  • A credit score of at least 600. If you currently have bad credit, you can contact us for a path forward—we'd be happy to help. 
  • At least three months of steady income, whether self-employed or working for a company. However, we may be able to help if you've just changed jobs. 
  • People who want to buy property in Brisbane, the Gold Coast, Greater Metro Sydney, Newcastle and Wollongong. However, we're always working on expanding our services to help more first-home buyers. So apply anyway, and we'll see what we can do.

What Home Can I Buy?

With OwnHome, you can choose any home that meets the criteria we share with you. One caveat with other providers is that some may rely on housing developers, so you may not get to select your exact home. 

Our criteria helps ensure you choose high-quality properties worth your hard-earned money. We don't want your homeownership dream to be ruined by issues later down the track. 

You have just as much flexibility buying a rent-to-own home with OwnHome as you do with a typical purchase.

Here's a general overview of our criteria: 
  • Any home purchase needs to have a market value under $2.5m. 
  • You can choose between many property types, including terraces, apartments, townhouses and free-standing houses. However, studio, off-plan purchases and one-bedroom apartments aren't eligible with OwnHome. We also can't approve land-only purchases as you will need to live in your OwnHome. 
  • Any home you choose must have a minimum area of 50 m2 and up to 2 acres. 
  • We don't accept properties that need renovations or are a 'renovator's delight' as an agent would call it because you never know the extent of the issues until renovations are complete.

Pre-agreed Purchase Price

When you purchase the property with a rent-to-own provider, you always know the pre-agreed purchase price, so there are no surprises about the sale price of your future purchase, even in a runaway market. From day 1, you know what you're working towards.

The pre-agreed price is set at the beginning of the agreement with the provider. Different providers will give you a different price and pathway to get there.

At OwnHome, we make your pre-agreed price simple. The starting price is the price at which OwnHome purchases the property. Each fortnight the purchase price increases by 0.143%.

This rate doesn't change, regardless of what happens to prices in the property market. The price is locked in for the period of your time with us.

If property prices have grown faster than 0.143% each fortnight, you keep the difference. For instance, if we bought a $1,000,000 property for you, and seven years later, you purchased it back from OwnHome at the pre-agreed price, if the market had grown at 7% p.a., you would have made $307,462 on top of the  security deposit  contributions you paid. Meaning you are already building equity as house prices increase.

The goal of OwnHome is to help turn renters into homeowners. We know that the purchase price is an essential part of making that dream a reality for you, so we're focused on ensuring that we buy great homes at great prices.

We do this by applying a data-driven approach to property purchases. You can read more about how we negotiate with agents and some of our strategies in our blog.

In summary, we don't just rely on the standard three comparative sales that real estate agents provide. We go above and beyond to find the most recent and appropriate sales. We talk with strata committees and councils, purchase building and pest inspection reports, look through all the legal documents with a fine-tooth comb, and ensure we cover all parts of the buying and conveyancing process.

Importantly, this entire process is guided by you, with our support.

What is the cost of rent to own?

Rent to own costs you much less upfront than a typical real estate mortgage.

Rather than the traditional 20% (or more in certain situations), you'll only have to part with a few per cent of the purchase price. 

Afterwards, you'll have fortnightly repayments—like you would if you were renting—except part of it goes towards savings that come off your future purchase price. 

For two years, you also don't have to worry about rising interest rates, as we will give you an upfront payment schedule showing all your rental payments and option fees.

Your option fee gives you the exclusive right, but not the obligation, to buy back the home after your 2-7 year agreement with OwnHome.

Here's what to expect with OwnHome:
  • An initial 3% payment upon sale closure. It covers a 2% starter payment and a 1% initial deposit into your security deposit. 
  • Fortnightly repayments (like the typical rent payments you have as a renter) contribute about 35% of this payment to your security deposit. 

How do I get a Bank Mortgage to buy back?

You will need to secure a mortgage or equivalent financing at the end of the rental period between 2-7 years. If you cannot secure financing at the end of the exercise period, we have a hardship policy that focuses on finding the best pathway forward for you.

The hardship policy will allow us to plan how to get you into your home as soon as possible - you'll get more information on this point once you've applied for OwnHome and have been accepted.

At this time, you can go to any lender or financing option to purchase your home back from us. You can also take advantage of any first homeowner grants you may be eligible for.

Summary:

Purchasing your new home in Australia is tough, but there are options to help get you into your dream home.

If you're looking to navigate the buying process, check out our ultimate guide to bidding and negotiation. Or, if you're looking to discover some additional options for how to get into your own home, check out some of our articles on rent-to-own vs a traditional home loan or rent-to-own vs paying LMI.

If you still want to know more, check out how rent-to-own works or if it's a legitimate way to buy a home.

At OwnHome, we help all customers navigate home purchases and get onto the property ladder without needing hundreds of thousands in deposit savings. If you're considering buying a home and want to learn more about rent-to-own, you can use the buying power calculator online.

Please note: This article is intended to be general in nature and is not personal product or financial advice. It does not consider your objectives, financial situation, or needs. You should always engage appropriate professional advisers to assist you in making any substantial financial decisions 

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