Rent to Own Homes – Is It a Good Option for You

Are the high home prices stopping you from owning a home? You can still be a proud owner if you consider rent to own. Before you get confused about this term, here is a brief explanation. Rent to own, also known as lease option, provides you a possibility to fulfill your dream of owning a home. In this option, the person initially leases the property and has the option of buying it at the end of the contract period. This option therefore allows home owner to save the down payment and get proper financing.

If you and the landlord actually have a good contract, it can be beneficial for both parties involved.

rent to own homes

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Why Should Prospective Homeowners Look at Rent to Own?

Prospective homeowners should not completely discard the option of rent to own without understanding it and analyzing its benefits. It can prove to be a hassle-free way to own a home especially for those who have just switched jobs. It is also beneficial for those people, who want to build their credit ratings or want some time to save up enough money to pay the down payment.

If you are a first-time homebuyer, this could just be the option that you are looking for. First time homebuyers are often shocked by the amount of down payment they have to make and the prices of homes. This puts them off.

Under the rent to own option, you can stay in the house for a fixed period of time and this allows you to check whether the house suits your needs and also whether the neighborhood is what you had envisaged. The rent that you pay usually covers the down payment for the house and it also helps build equity in the house, so that you enjoy better interest rates.

Understanding the Working of Rent to Own

As a prospective buyer, you cannot just walk up to the seller and request a lease option. This option is dependent on the prevailing real estate market conditions. If the market is soaring or even steady, you can forget about getting a rent to own option. On the other hand, if home property market is dipping, homeowners do not want their homes to sit and collect dirt. This is when they begin looking at different options to sell their homes and are more open to the lease option.

Typically, if you and the seller can reach an agreement, a contract will be drawn out. It all depends on how good your lawyer is if you want the contract to be more in your favor. Nonetheless, there are certain things that each lease option contract will cover. Some of them are as follows:

  • You, the renter, have agreed to lease the house for a fixed time, which usually is anywhere from one year to three years.
  • The renter has to pay something known as option fee, which is non-refundable. However, you can add it to the down payment. Usually, the option fee varies from 1 to 5 per cent of the purchase price.
  • The renter pays higher rent for the property than what is prevailing in the market. The market rent amount is deducted from the rent you pay and the remaining portion is put into a fund that is used to make the down payment at a later stage.
  • The purchase price is fixed and cannot be altered at a later stage by you or the seller.
  • You, the renter, can purchase the house anytime before the lease contract expires.

Why are Sellers Open to Rent to Own?

Usually, a seller will only consider lease option if he or she is facing difficulties in disposing the property. It can also be beneficial for those homeowners, who have relocated to another city or country or those who have bought a new house before they could sell their previous house and thus, face the burden of paying two mortgages simultaneously.

Another reason why sellers tend to be partial to rent to own option is that they enjoy regular rent during the contract period. This increases their income.

As the contract locks the property price at the time of signing the contract, homeowners have peace of mind if they are worried about the price falling in the future. This keeps their investment intact and they can make a profit at the time of the sale.

Above all, they never have to worry about tenants thrashing up the property, as the tenants usually look after the property well and this substantially reduces maintenance and upkeep costs.

Rent to Own Option – The Risks

While there are benefits for both buyers and sellers, there also are certain risks that both parties should be prepared for.

  • If either party infringes the terms of the rent – not paying the rent on time or not making necessary repairs – the agreement become null and void.
  • Even at the end of the contract, the renter may not get approved for the mortgage and this is a missed opportunity for the seller to sell his property.
  • The purchase price that the buyer views as bargain at the time of signing the contract may seem too high at the expiration of the contract, especially if property prices in the neighborhood fall.
  • Rent to own contracts usually are drawn up to benefit sellers and that is why prospective buyers should get a good real estate attorney to check out the contract before signing on the dotted lines. This helps to protect the buyer.
  • Even though the seller is going to sell the property a few years down the line, he still has to incur expenses for its upkeep, taxes and other expenses that landlords are expected to bear.

Summary

A rent to own option definitely can be a win-win situation for the seller and buyer. However, buyers should remember this is like any other property sale. So, they should get the property appraised and inspected by professionals. Furthermore, they should consult a financial institution to find out how they can get a mortgage at the expiration of the contract. This will ease your burden and ensure you have made the right choice.

A lease option ensures sellers are not saddled with an empty property that keeps depreciating in value. So, whether you are a buyer or seller, you should seriously give rent to own or lease option another look.

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