When searching for a home to rent, some potential tenants see lots of ads these days for homes available as a “rent to own.” What exactly does this mean? Usually, on top of the monthly rent, you will pay an extra amount per month that goes toward buying down the purchase price of the home. This is generally a good solution for those who would have a hard time getting a mortgage because of credit issues or not having enough money for a down payment.
So what are some of the pros and cons? This list should help you determine if this option is right for you. This article also offers tips on what to do before ever signing into an agreement for a rent to own.
1. Improving your credit. By making regular rental payments to the owner or landlord, you’re much more likely to have an easier time qualifying for a mortgage. You’ve quickly built up a good down payment.
2. Sellers can benefit if they’re having trouble selling their current home when they’ve already purchased a new one. Now they have a tenant in the home helping to pay down their current mortgage so they’re not making double payments each month.
3. It gives you a chance to live in a new neighborhood, city, or town without having to make the committment of actually flat-out purchasing the home. If you don’t like it after living there, you might lose some money that you’ve paid, but you’re not stuck in a place that you feel is uninhabitable.
1. If you fall behind on your payments, you can very quickly lose the money you’ve already paid and don’t have a place to live. The landlord has the right to evict you without giving you your money back. Make sure you read the fine print in any agreement you sign detailing what happens if you stop paying.
2. Since the housing market is constantly in flux, it’s hard to set a price a year or two in advance of what you think the house will be worth when it comes time for you to actually own it. If prices continue to fall, you may end up paying more for a home than what it’s actually worth.
3. Foreclosures. If the owner of the home goes into foreclosure while you’re renting and they eventually lose the house to the bank, not only are you evicted from the home, but you’ve lost the extra money you’ve put towards a down payment. You’ll need to make sure that the owner is making his monthly payments while you’re renting or you could be out a place to live.
If you have other questions on how the rent to own process works, I’m happy to help. Please visit me online.