Buying a home can be a difficult achievement if you don’t have the finances to cover the down payment, closing costs, and repairs you will need to make to the property. However, renting doesn’t bring you any closer to owning your own home.
Rent-to-own homes offer a compromise between the two, possibly even granting you the best of both worlds. Let’s discuss. (Oh, and if you’re already sold on the idea, we can help you got your rent to own home. Click here to get started.)
The Pros:
- Renting-to-own can make it easier to put aside cash for a down payment and to see if the home you are renting is a good fit for you and your lifestyle. Depending on the details of your contract, a percentage of what you are paying for rent is applied directly to that down payment.
- Many contracts share the repair and maintenance responsibilities between the landlord and tenant. This could save you from having to pay for larger repair bills and give you the chance to assess what you might be in for as a future homeowner.
- Depending on the type of agreement you sign, you have the choice of whether to buy or move at the end of your lease.
The Cons:
- Depending on the contract, you might lose the money you paid in rent (and the option fee) if you decide not to purchase the home.
- If you cannot qualify for the home loan at the end of the leasing period, you may not be able to buy it. At that time, your landlord may decide to rent or sell the property to someone else.
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Lease-Option vs. Lease-Purchase
Both of these options allow you to rent a home for a number of years (typically from 1 to 3) and then purchase that home once the lease expires. But there are differences between them.
A lease-option agreement gives you the right to buy the home when the contract ends, but you are not obligated to do so. You can decide not to purchase the property and walk away without any penalty. These contracts come with an upfront option fee (usually around 2-7% of the total price of the home), which is then forfeit if you decide not the buy. Declining to purchase the home, however, also means that any money paid towards rent is likewise forfeited.
Lease-purchase contracts work similarly to lease-option contracts, except that you are obligated to purchase the home once the lease ends. A price is typically agreed upon at the time that the lease is signed, which lets you know exactly how much you need to acquire for the loan.
Before You Sign a Lease:
- Read the contract, including the fine print.
- Research the home and know its past.
- Check the seller’s credit and financial history.
- Get a real estate agent and consider possibly hiring a real estate attorney.
Rent-to-own agreements may be exactly what you are looking for. They include many of the perks of both renting and of homeownership. But there are still risks and things that must be considered. Weigh these points carefully and decide if renting-to-own is right for you!
We’d also like to provide you with more resources on your rent to own journey. If you’re interested in expanding your knowledge about rent-to-own homes even further, you can check out another article here.