The rent-to-own market is on the rise. More and more people are thinking about owning their own home but not being able to qualify for a mortgage or being still on process of building credit history, this option might work for you. The rent-to-own option offers the best of both worlds, rent until you can afford it then buy! Here are some of the things you need to know before entering into this agreement.
Rent-to-own basics: Crediting rent toward a future purchase
In rent-to-own leases you’ll rent a home from an individual or investor willing to rent their property with an agreement that the renter will buy it on a certain date. Rent-to-own agreements usually last between 1 to 5 years and include an option to purchase. It’s important to realize rent-to-owns are not for everyone as they come with potential risks, including trying to qualify for mortgage financing later, delays in finding your ideal home, rent increases during the rental term and other issues.
There is an option as well where the tenant and the homeowner stipulating that a portion of the monthly rent is credited toward the future purchase of the property. The rent-to-own tenant may also have the opportunity to purchase the property before the set date, depending on how the contract is written.
Is rent-to-own a good idea?
Renting to own a home can be a solid financial decision. Remember that rent-to-owns are not for everyone, so it’s important that you weigh the pros and cons before signing up for this type of lease.
You’ll need to consider the terms of your rent-to-own contract, rent increases throughout the rental period, location and condition of the home, rent payment amounts compared with what you would pay for rent at another property, future costs for repairs or renovations needed on the home and whether you can afford to purchase it by the end date.
Renters considering rent-to-owns should also do their research to find out how other renters have fared in rent-to-own agreements. Look into how long other renters have rented before becoming homeowners through rent-to-owns. Ask others if they purchased their homes early or late based on when they had initially planned to buy them according to their rent
A lease-option or lease-purchase agreement
A lease purchase agreement allows you to rent a home for a period of time while planning to buy it at close. A lease-option agreement gives you the right to rent, but not an obligation to buy it, however you will have the Option to perform and buy it.
So rent-to-own arrangements come down to personal preference and financial circumstances because it’s difficult to anticipate what life might bring in the future or how much buying a home might cost. There are benefits and risks involved with rent-to-owns so make sure you get all of the information before making a decision about rent-to-own leases .
Go To House Buyer does not provide legal, tax, or investment advice. This material is for informational purposes only. It should not be considered as investment advice and may not be used as a basis for any financial decisions. Please seek advice from a professional in these areas before making a decision.