How To Own a Home in Ghana Through Rent-To-Own Arrangement
Rent to own in Ghana is a lease option that the government of Ghana has implemented to help low to middle-income earners have access to quality housing in the country. In this system potential homeowners lease to own homes within a specific number of years. In a rent to own system, there are two contracts, a lease and an option to own on a future date.
What is rent to own?
Rent to own means that you enter into a home-owning agreement with your landlord that you will pay a higher rent than the market rent so that the portion of your monthly rent is credited towards the downpayment of your future purchase of the house.
For instance, you want to buy a house and you don’t have the creditworthiness to secure a mortgage. You do not also have the required, say, Ghc100,000 down payment. You agree with your landlord that Ghc5000 of your rent amount goes toward the purchase. So in 24 months, the landlord will have Ghc100,000 from you.
How to access rent to own homes in Ghana
The Government through the National Housing and Mortgage Fund has partnered with GCB Securities Limited and set up an Affordable Housing Real Estate Investment Trust (REIT) to provide decent rental homes for public sector workers in the country. The scheme operates a rent-to-own model which allows public servants to rent decent and affordable homes for 15- 20 years after which they pay a residual value and own the property.
Ghana Commercial Bank is the official underwriter for the rent-to-own scheme in Ghana and they have subsequently selected developers to implement the rent-to-own scheme in the country. The mortgage rates range from 11.9% to 12.5% depending on the partner bank. All mortgages are in Ghana Cedis.
Meanwhile, Ghanaians can access the rent-to-own homes in Accra for Studio Apartments, One (1) bedroom Apartments, Two (2) bedroom Special, and Two (2) bedroom Apartments.
You will have to complete an application form and print a mandate form from the controller and Accountant General’s website authorizing deductions from your salary. To do that you will need the following documents.
- Employment Letter
- Salary slip (3 months)
- Bank statement (3 months)
- National ID
- Passport picture
By getting in touch with some rent-to-own homes developers across the nation, you can learn more about the application requirements.
How the rent-to-own scheme works in general
This arrangement allows the buyer to rent the home as well as gives them the option to purchase the home at a set price during a certain time period. The system is such that a tenant and a landlord go into an agreement where the tenant agrees to make a predetermined series of payments to the landlord and an additional sum of money that goes towards the purchase of the home at the end of the contract.
There are 5 fundamental features in a rent to own arrangement. They include the market rent, rent credit, purchase price, option length, and option fee.
Market Rent — This is the rent the tenant-buyer agrees to pay to the landlord. This is usually determined by the market forces of demand and supply in an arm’s length transaction.
Rent credit — The rent credit is the amount of rent that the tenant pays extra to the market rent in the form of a down payment in preparation for the purchase of the home at the end of the contract. This amount can either be a portion of the market rent or an amount above the market rent.
For example, if the market rent is Ghc1,500 per month, the seller might ask Ghc1, 500 per month rent and a Ghc500 rent credit for a total of Ghc2,000. This amount is the decent sum of cash the tenant-buyer has to put down (usually about 5% of the purchase price).
Make sure to pay on time. In this system the tenant should always pay on time and not default otherwise, the seller might have the option of not giving you the rent credit for that month. Make sure that all details of the rent credit are included in the option agreement.
Purchase Price — The purchase price is one of the most important parts of the rent to own agreement. This is the amount the buyer will purchase the home in exchange for the ownership. However before you sign any paper contract, find out how many other similar properties are selling in the market. Remember, even if the real estate market goes up or down, the agreed purchase price will not change.
Option fee — The option fee is a one-time fee paid at the start of a rent to own purchase. If the buyer purchases the home within the agreed-upon time period, 100% of the option fee will go towards the purchase price or down payment. If the buyer does not purchase the home it is non-refundable and becomes rent to the seller. The option fee is normally 1-10% of the purchase price.
Options Length — The option length in a rent to own agreement is the amount of time the buyer has to get on a mortgage in order to purchase the home. The time period normally ranges from 3-5 years and can sometimes be extended if the seller and buyer agree. In case the option period expires the buyer may lose all rent credits and the option fee.
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