What you Need to Know About Rent-To-Own a Home


Rent to Buy

If you are like most first-time homebuyers, you will need a mortgage to finance the purchase of a new house. To qualify for a mortgage, you must have a good credit score and cash for a down payment that is usually between 10-20% of the purchase price. Without meeting these initial conditions, the traditional route to homeownership may not be an option in today’s real estate market.  

Five million more Kenyans have been blacklisted with the Credit Reference Bureau (CRB) in a period of five months since August 2020. Data by Metropol CRB revealed that 14,035,718 Kenyans had been negatively listed by January 2021, a major increase from 9,673,258 in August 2020. Furthermore, Kenya only issues around 26,000 Mortgages annually. This has left potential home buyers needing to look at unconventional methods to buy their first home such as, rent to own.  

A rent-to-own agreement is a flexible method of purchasing a home. One agrees to rent a home over a certain period of time and purchases the home before the lease expires. This can be done in two main ways:  

  • Lease option: 

There is an option of buying the house once the lease agreement expires and prohibits the landlord from selling the house to another person during the lease termIf you change your mind, you can always move to another house with no obligations to the property owner. The seller gets a fee, known as the option fee or option money which gives you the option of buying the house once the lease expires. This fee is non-refundable, but it is negotiable and will range between 2% to 7% of the purchase price of the house. After settling on the contract, the seller gets a fee, known as the option fee or option money which gives you the option of buying the house once the lease expires. This fee is non-refundable, but it is negotiable and will range between 2% to 7% of the purchase price of the house. If you as the tenant then change your mind at the end of the lease term, you can always move to another house with no obligations to the property owner. 

  • Lease purchase:

This is the most popular option in Kenya today. It is a legally binding contract where you are obligated to buy the house at the end of the lease term whether you can afford it or not. It is usually hard to get out of this type of contract. The tenant has exclusive rights to purchase the property. 

Benefits Of Rent-to-Buy Option

A rent-to-own agreement can be an excellent option if you are an aspiring homeowner but are not quite ready, financially. These agreements give you the chance to get your finances in order, improve your credit score, and save money for a down payment while “locking in” the house you would like to own.  

Flexible payment plans: By the end of June 2021, the ratio of non-performing loans to total loans in the banking sector in Kenya stood at 14 percent. In this model of purchase, developers have their own private financiers who give funding at a lower interest rate. This gives buyers access to cheaper payment plans.  

Down payment: This varies according to developers. Some developers in Ruaka give their homeowners the option of not paying any down payment and instead focusing on monthly installments at a higher interest rate. Another alternative they offer is to purchase the home with a down payment at a lower interest rate.  

Get a Home at the Current Market Value: One can get into an agreement to buy at the current market price with the intent to purchase the house later in the future. This means that if the price appreciates in the future, the purchase price will remain the same.  

Test-Drive: This allows prospective buyers to live in a home before fully purchasing the property. The buyer will have the chance to live in the home and ensure all issues any snags in the property are sorted out by the developer before completing the purchase.  

Risks Involved in The Option

Inability to pay the monthly fees: This could force you to lose the home as well as the initial installment payments that you rendered before. This has happened to buyers with a mere few months remaining to complete the purchase.  

Little or no control of your property: One cannot sell the property until completion of the purchase process. There could also be unexpected structural issues that arise forcing you to commit to a home that you are not comfortable in.  

To ensure that you have all things covered, one needs to partner with an excellent real estate agent such as Property Boutique. With a dedicated legal team, Property Boutique will make certain that the right due diligence is carried out on your contract, the development, and its developers warranting that you are protected throughout the entire process. We also recommend projects with a good track record from developers we have worked with in the past and are certain they deliver good projects. 

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