Rent to Own Schemes in Dubai – Money Clinic | Compare4Benefit

Rent to own schemes in Dubai

To save yourself from the initial financial pressures of property buying, you can utilize the concept of rent to own schemes in Dubai.

The property market in Dubai holds great opportunities for buyers. But the initial cost becomes a troubling factor for many.

You are supposed to have about 25 percent of the total property cost saved along with an amount that covers all the initial costs related to property buying in Dubai. This surely puts significant pressure on your pocket.

What are rent-to-own schemes?

Living as a resident in Dubai requires you to rent a place, if not buy one. Every month you have to pay a certain amount as your rent. With RTO or Rent to Own schemes in Dubai, you get a chance to utilize those rent payments as loan payments to own a place after a while.

Your rent every month turns into the home buying equity after the completion of the pre-decided lock-in period.

This scheme turns your rents into well-structured installments or payments towards property acquisition.

At the end of a particular lock-in period, you can utilize a mortgage or any other method of completing the rest of the installments until the complete acquisition of the property.

Rent-to-own schemes also require an upfront payment when buying a property in Dubai. However, this amount stays way lower than the 25 percent of the overall property cost.

It is common to attain the advantage of RTO schemes with only 5 percent of the total property cost. The conditions of an RTO scheme can change, depending on the contract between a buyer and a seller.

Working of Rent to Own Schemes in Dubai

The concept of RTO scheme is highly beneficial for people who find it overwhelming to save a huge amount of down-payment money for property acquisition. Even in the situation of difficulties in mortgage approval, the rent to own scheme becomes a reliable choice.

It is important to realize that such schemes bind you in longer agreements of the lease. You might be paying a lease for about 2 years, 3 years or a longer period. The good thing is that your rent stays fixed during the first few years, which gives a perfect foundation to pick the right property to invest in via RTO schemes. However, the rent may increase after you finish the lock-in period.

With the Dubai Land Department, it is possible for a financer and property buyer to register in RTO schemes. It creates a contract, in which, the property buyer is supposed to give payments to the property financer.

It is pretty similar to the bank-based mortgage services. At the completion of your contract period, you attain the ownership of the property as a buyer.

Potential rent to own scheme agreements

There are two major kinds of rent to own scheme agreements popularly used among property buyers and sellers.

  1. Agreement with an option to buy

In this type of agreement, you put an option to buy a rented property in future. So, you can decide to buy or not buy a property in future. This type of agreement requires an additional œoption fee from your side.

This option fee is usually a small percentage value of the total price of the property. This amount gives you the ability to make the property purchase after some time.

If in future you decide to buy the property, the developer or owner has to sell that property to you only. The already paid option fee gets deducted from the total purchase price of that property.

However, in case you decide to not purchase the property, the developer or owner is not liable to pay the option fee back to you.

  1. Agreement with purchase confirmation

This type of rent to own agreement includes a confirmation of buying the property from your side.

From the beginning, both the parties decide a purchase price or choose to determine the property price according to future appraisal. The buyer and seller also agree to keep a fixed closing date on property acquisition.

As a buyer, it is important to study the market before deciding the property price in this agreement. If the market is rising, it is smart for you to opt for a pre-defined, fixed property price.

This way, you start making equity before buying due to the increasing value of a property in the market. However, if you suspect a decreasing value of a property in future, choosing future appraisal becomes a wise move.

Dubai Mortgages

Advantages of utilizing rent to own schemes in Dubai

Both a buyer and a seller can acquire benefits using a rent to own schemes in Dubai.

  1. A simple way of paying the down payment

The most visible advantage of rent to own schemes is your ability to manage down payment in a controllable manner. You don't have to put stress in your mind to save a big amount of cash up front.

The scheme itself serves as a plan to save down payment as your property rent for a few initial years. However, you still need to save an optimal amount of money to ensure the ease of paying other charges and fees related to property acquisition.

  1. Enough time to work on your credit score

Many people don't get mortgage loan approval due to a bad credit score. In that case, you have to work continuously on your credit score before applying for a loan once again for home acquisition. But all this time, the price of the property keeps on rising.

With rent to own schemes, you can lock a property with a fixed price and keep paying rent for a few years. This rent serves as your down payment, while you get enough time to improve your credit score. So, when the lock-in period ends, you can easily utilize a mortgage to pay off the rest of the property price.

Also Read : Best Mortgage Rates UAE 2019

  1. Ability to make profitable property investments

The Dubai property market is showcasing a moderate rate of growth right now. However, the experts predict a great market rise after the 2020 Dubai Expo.

This makes rent to own schemes a golden chance for property buyers to utilize a lock-in agreement to buy a home. You can utilize a fixed price agreement, which will keep the price of the property same when you are ready to buy in a few years.

  1. Freedom of planning home maintenance

When you know that you are going to buy a rented house one day, maintenance steps become easier. You don't worry about wasting your money.

You can take enough time and plan home maintenance, extensions, and repairs. This makes you comfortable in a house even before you buy it formally.

Factors you can't afford to miss before signing a rent to own contract

  1. House value

Utilize a trusted source to find out the right value of a house. This value should justify the amount given in the property agreement. You don't want to agree to a price that is higher than the actual value of the property.

  1. Lock-in period

Evaluate the lock-in period included in your contract, which is the years of paying rent to save as the down payment.

  1. Down payment

Evaluate the total amount of your rent that will work as your down payment according to the contract. In some cases, only a small percentage of your rent works as the down payment. Hence, this evaluation is critically important before signing a contract.

  1. Refundable rent vs. non-refundable rent

In some contracts, sellers agree to refund some amount of down payment, in case you decide not to purchase the house. You need to study the contract properly to find out whether you are eligible for refundable down payment or not.

  1. Terms of exiting a contract

Every rent to own agreement includes special terms of exit. You should carefully read the conditions and terms to understand the situations and their consequences if you decide to exit a contract.

  1. Hidden charges

There can be a few hidden charges or additional costs associated with a home acquisition. You need to find out about them and include them in your personal list of charges. This way, you can save enough money to cover those charges without any complications.

  1. Potential job loss

Job loss can be a big hurdle in your way to completing a rent to own contract to acquire your house. You should discuss potential job loss and find out ways to recover in those scenarios.

  1. Rejection of mortgage

Mortgage rejection is another critical issue that can arise in future. You should plan ahead and cover the tracks in advance for the situation when you don't attain mortgage approval at the moment of purchase.

With the rent to own schemes Dubai, you hold a chance to acquire your dream home without losing valuable time or putting too much pressure on your financial condition. Hopefully, this article has prepared you to leverage rent to own schemes in dubai systematically.

To Know more about Mortgage Loan Process, Read our updated blog ” Complete Guide on Mortgage in Dubai“.


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