Rent Back House: What You Need To Know

While it is no secret that the U.S., and to some extent the UK are now in the middle of a mortgage meltdown of epic proportions due largely in part to the lagging economy colliding with the once attractive and flexible mortgage rates that are now coming back to haunt those who took advantage of it at the peak of the market.

Flexible rate loans are readjusting to higher rates resulting in higher loan payments. This unwelcome burden for those already on tight budgets is the source of great concern, as many must now fight to stop repossession. Lenders are also under pressure from the increase in default loans making them less able to hold onto delinquent loans.

Rent back house is a term often heard in discussions revolving around stopping home repossessions. Many aren’t sure exactly what this means. Rent back house is another way of describing a fix allowing the owner, who is defaulting on the mortgage, to continue living in the house by paying rent. Some offer options allowing them to sell and buy back the home or participate in rent-to-own programs.

The company who buys the home in a “rent back house” scheme will usually offer to charge a rent that is much less than the current mortgage payment which eases the crises for the homeowner. The seller need not move out of the house, which is of course yet another expense, and has a lease that fixes a housing cost for a period of time instead of the worry of what the next mortgage interest rate increase might be.

The problem is that the rent is not permanent as a fixed rate mortgage would be, and when the term expires, the amount can rise considerably. In fact, the new owner can always sell the property again and the person who takes ownership may want more rent or even want to occupy the property and require the tenants to leave. This scenario is possible but in reality is highly unlikely because investor buys the property to keep it long term and wants to keep the tenant there for as long as possible. But uncertainty clearly remains.

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.

Rent back provider arrangements and quick sale purchases have a significant disadvantage. You will be selling the house for much less than the current market price and will have to buy it back at the full market price. However, if you are in financial difficulties, these plans may let you get through them and buy back the house when your finances are in better shape. Flexible rates present similar risks. In any of these cases, it will be attractive to buy the house again at today’s price if housing prices start to rise again.

But how did this all happen? Back when home loan interest rates were very low, many flexible rate mortgage programs were offered using special low “starter” rates. These programs enticed many buyers to accept loans where their budgets really only were appropriate to meet payments at the starter interest rate. Then when rates rose sharply recently, the new adjusted payments were impossible for them to meet. Many choose to either do a “quick sale” or a rent back house plan in order to avoid losing their homes. For some, renting back is a lifesaver, allowing them to rent back and then buy back their same house without having to move out and give up their dream home.

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. You may have heard the phrase “rent back house” in connection with discussions on stopping home repossessions and wondered what it means. This term is shorthand for a solution that allows a defaulting mortgage holder to at least stay in their home and stop repossession 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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