No one ever said buying a house was easy, but it doesn’t have to be impossible, either. Rent-to-own homes may just be the answer you’re looking for.
It’s a way to get your dream home without breaking the bank. But before you jump in with both feet, let’s take a look at what rent-to-own actually is and how it works.
So, whether you’re a first-time homebuyer or just looking for a new way to get into the housing market – read on to find out if rent-to-own is right for you.
What are Rent-to-Own Homes?
Rent-to-own is a special kind of agreement between the tenant and the landlord. The tenant agrees to rent the house for a certain length of time, usually one year or two. During this period, the tenant pays rent and puts a portion of that rent toward the home’s purchase price.
At the end of the lease, the tenant has the option to buy the house. If they don’t want to buy or can’t get a loan, then the agreement is simply terminated, and no harm is done.
How Does Rent-to-Own Work?
Rent-to-own is a great way to get into the housing market if you have bad credit or can’t get a loan. You pay the landlord instead of a bank, so your credit score won’t be an issue.
The tenant agrees to a fixed price for the house and makes regular monthly payments. The landlord typically holds part of this payment in escrow to be used as a down payment when the tenant is ready to purchase.
At the end of the lease, the tenant can either choose to buy the house or walk away. If they choose to buy, they pay the purchase price balance plus closing costs and become the new homeowners.
So, if you’re looking for a way to get into the housing market without having to save up a huge down payment, rent-to-own might be for you.
Benefits of Renting to Own Homes:
Everyone knows the importance of homeownership, but not everyone can snag a loan. Rent-to-own can be a great way for those with poor credit or no down payment to become homeowners. Here are a few of the biggest advantages:
No huge down payment required:
With rent-to-own, you don’t have to save up thousands of dollars for a down payment. You can start with a small escrow and build it up over time. It’s much more achievable than a huge lump payment.
Plus, you get to enjoy the home while you save up. You don’t have to wait years before moving in.
Build your credit:
Rent-to-own can also be a great way to build up your credit score. Since you’re making regular payments on time, your credit report will reflect your responsibility and gradually help you boost your score.
Flexible terms:
Rent-to-own agreements are typically flexible. You can negotiate the length of the lease, payment amounts, and even the purchase price. This can be a great way to get into the housing market without breaking the bank.
In addition, you can usually include other conditions like pet fees, maintenance costs, and more.
No loan approval needed:
Rent-to-own deals don’t involve a bank or a loan. That means you don’t have to go through the hassle of loan approval. You just have to come up with a down payment, and you’re ready to move in.
Not only that, but if you choose to buy at the end of the lease term, you’ll still have time to get pre-approved for a loan.
No obligation if you change your mind:
With a rent-to-own agreement, you’re not tied into anything. If you decide to move or change your mind at the end of the lease, you can simply walk away without any penalties.
Plus, you can always rent-to-own again if you change your mind down the line, which is always an option.
Equity Build-up:
Rent-to-own allows you to start accruing equity in the home from day one. As you pay to rent and make payments toward the purchase price, you start building up equity in the house. This can be a great way to get into the housing market without breaking the bank.
Disadvantages of Rent-to-Own Homes:
Rent-to-own isn’t right for everyone, and there are a few potential drawbacks to consider. Here are a few of the disadvantages to keep in mind:
Risk of eviction:
If you don’t make your monthly payments, the landlord can evict you. This means you could lose your down payment and all the money you’ve put toward the purchase price.
Risk of foreclosure:
If you default on the purchase agreement, the property could end up in foreclosure. That means you would lose out on all the money you’ve put toward the purchase price and your down payment.
Higher interest rates:
Rent-to-own agreements often come with higher interest rates than conventional loans. This can end up costing you more in the long run.
No guarantee of a purchase:
At the end of the lease, there’s no guarantee that you’ll be able to purchase the house. The owner can choose not to sell or to raise the purchase price. That means you could end up losing out on all the money you’ve put into it.
Limited availability:
Finally, rent-to-own agreements are not widely available. You may have difficulty finding a property that fits your needs. Plus, you’ll likely end up paying more for rent than you would with a traditional lease.
Final Thoughts:
Rent-to-own can be a great way to get into the housing market without having to save up a huge down payment. However, it’s important to understand the risks and potential drawbacks of rent-to-own agreements before signing on the dotted line.
Make sure you do your research and understand all the details before committing to a rent-to-own deal. That way, you’ll be sure that it’s the right move for you and your financial goals. Good luck.