If you are renting, most people would say that you are just throwing your money away. That is the reason why others are forced to consider rent to own homes. Several people say rent to own deals are a happy medium. Once you rent to own, part of the rent will go to buying the home you are renting. This means that your rent is basically laying a good foundation for your future. However, is it really a good financial decision?
Before you make any decision, it would be wise to know how rent to own works, its benefits, and other basics of this deal.
How Rent to Own Works?
The process basically starts with a contract. Actually, it starts with 2 contracts, which include a rental agreement as well as an option to buy the property.
Rental Agreement
Your rental agreement would look much like the standard lease. It’ll specify your rent and term. In some cases, it’ll be 2 or 3 years. There would be some standard terms and conditions you should meet. Once you violate such terms, you can be kicked out. But, you also risk of losing money you have paid toward the eventual purchase of the home.
Lease Option
This provides you dibs to buy the house you are getting, usually valid for term equal to lease term set forth in rental agreements. Therefore, if rental agreements specified a 3-year lease term, lease option would provide you 3 years to purchase the house without worrying about anybody else snatching and swooping in under you. To keep the first dibs, you have to pay the option fee, which may differ widely and credited to the purchase of the home at the end of the term. See to it that you sign a lease option and not lease purchase.
Benefits of Rent to Own
- Locked-in Price
Rent to own contracts include agreed-upon purchase price for homes. The owners can’t raise the cost of the house in the future, so you do not need to worry about facing higher prices once market improves.
- Trial Run
You’ll be able to experience the house before you commit to buy it. This only means that once you change your mind when rental term ended, you can just walk away and you are not tied down by a mortgage.
- Breathing Room
Generally, you will need a good credit history to qualify for mortgage loan. If you have thin credit record or poor credit, rent to own house will buy you more time to straighten your finances.
The Bottom Line
Rent to own isn’t always a wise deal. If tenants decide not to buy the house in the long run, no extra money they paid to the seller will come back. When compared to traditional rental scenarios, tenants are responsible for maintenance and repairs during lease term and any sweat or money equity you put to the property won’t be reimbursed.
There are also other rent to own agreements that are worded so you’re obligated to buy the house at the end of the lease. It is crucial that you know what you’re signing once you enter such agreements so you won’t get stuck with a contract you can’t fulfill.