Rent Back House Or Buy Back To Stop Repo
It’s hardly a secret that the United States, and to some extent United Kingdom, is now in the middle of a mortgage crisis of epic proportions. A lagging economy has met disastrously with the once attractive flexible rate mortgage rates coming back to hit home owners hard.
Higher interest rates have created a sudden increase for those with flexible rate. When a budget is already tight, this can make it very difficult to maintain payments and stop repossession. Lenders are also pressured because of the high number of defaults and the cost of carrying loans that are delinquent.
Here’s a new strategy to stave off home repossessions. Its called “rent back house” and is an interesting ploy. The concept of “rent back house” means exactly what it seems; the person who holds the mortgage (and is defaulting on it) gets to stay in their home by becoming an tenant instead of an owner. Folks in this situation may even be able to sell and buy back their houses. Other choices include renting to own and similar ploys.
A seller who may have to use a rent back house option are usually dealing with a company that buys the home and charges rent that is less than the current mortgage payment amount which takes a lot of pressure and stress off of the homeowner. The seller does not have to move out of the house which is a large expense and also has a lease that fixes the rate of a housing cost increase for a certain length of time so that there is no worry of an impending mortgage increase.
One drawback is that rent is not permanent, as opposed to a fixed rate mortgage. So it’s possible that the amount can increase when the term expires. And the new owner can resell the property to someone else who may increase the rent or want to reside in the property themselves. It’s an unlikely scenario, since investors want to buy the property for the long term and retain their tenants. Still though, it is a possibility and a risk you should be aware of.
However a buy back option can prevent this uncertainty. This simply means that the house can not be sold under you for a specified period of time, often two to five years. And if you research companies, some even guarantee that you can exercise your option at current market price (that is the price of the property today, or even lower) if you buy back during that time. You may want to negotiate for this option if at all possible.
You should be aware that quick sale buyers and rent back providers will typically pay below actual market prices, but you will buy it back at the full price. This still can be a good scheme for homeowners to buy again once they are more financially secure. Of course, flexible rates are still risky. But one good thing is that if property prices continue to go up in the near term, you will be able to buy the house at today’s price or possibly even lower.
How did so many get in this home crunch situation? The flexible rates were handed out like candy when home loan interest was very low. These special low “starter” rates were given allowing too many people to qualify for loans that they could not afford. Having budgets that were only good enough for starter rates so when interest shot through the roof, the new payments were unreachable for them. This left them with very few choices. Sure maybe a quick sale or rent back house plan with possible repurchase rights as not to face repossession. For the people who fell in that category, the option to rent back and then buy back the same house without having to move out could save them from unnecessary upheaval and heartache.
A lagging economy has met disastrously with the once attractive flexible rate mortgage rates coming back to hit home owners hard. This unwelcome burden for those already on tight budgets is the source of great concern, as many must now fight to stop repossession. Basically, this quick term, “rent back house,” is shorthand for a solution that allows a defaulting mortgage holder to at least stay in their home by renting it. Some companies also allow them to sell and buy back their homes or even have a rent to own scheme or other options.
- Peter Shukla
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