If you’re interested in buying a house but aren’t in a position to do so yet, a rent-to-own agreement might make sense for you and your family. Basically, this is an alternative housing purchasing plan to traditional home loans.
At the outset, rent-to-own homes are rented out with a similar lease structure to the traditional landlord-tenant agreement. However, the contract they both sign gives the renter exclusive rights to buy the property at a specific time in the future.
In this agreement, a portion of the agreed-upon price is paid upfront and some of the monthly rent additionally goes towards the purchase price.
While there are pros and cons to rent to own homes, it can be a beneficial situation for some families or individuals. Let’s take a look at six benefits of this path to homeownership.
1. A Poor Credit Rating Might Not Disqualify You
If you have bad credit but you want to buy a home, you can use a rent-to-own agreement in order to start buying a house.
Since the 2008 housing crisis, mortgage companies have gotten a lot more strict about the credit rating you need to get approved for a loan. This means that if you haven’t actively been paying attention to managing your credit score, you might be surprised to find that home ownership is out of reach through traditional means.
Even if you are unable to qualify for a home loan, you can start the process with this type of agreement. You can also work on rebuilding your credit over time so that you might be able to get a loan once the time finally comes to purchase the house.
2. You Can Lock in a Purchase Price
In housing markets where home prices are ever-increasing, it can be advantageous to lock in a purchase price. You can essentially agree to buy the home at today’s price with the actual purchase occurring several years down the road. Plus, you will still have the opportunity to back out if home prices end up falling in several years.
However, you will need to take into account how much money you have paid under the agreement and whether or not backing out make sense financially.
3. You Can Give the Home a Test Drive
One of the benefits of a rent-to-own agreement is that you can live in a house before you have fully committed to buying the property. This means that you can learn about all of the issues that the house has, what the neighbors are like, and any other problems that there might be before you have close on the deal. You can essentially give the home a test drive to make sure that it is the place that you want to live in the years to come.
4. You Can Build Equity
To be clear, renters do not typically build equity in the same exact way that homeowners do. However, over time, payments can accumulate and can provide a substantial amount of money that can be put towards the purchase of the home.
Your equity can grow faster than with a regular mortgage in certain scenarios depending on how much the property appreciates. In some cases, when it’s time to make the final payment, you might find that the value of the home is much greater than how much the house is worth.
5. You Aren’t Responsible For Property Taxes
Since the seller is still the owner of the home, even though you are in a rent-to-own agreement, they are responsible for paying property taxes until you officially buy the house. The seller will also be responsible for paying for insurance on the property because you are not technically the homeowner yet. However, you will need to buy renters insurance in order to make sure that your own possessions are covered in the case of damage.
If there are any homeowners association fees, the seller will also be responsible for those, too. Any repairs that need to be made is something that will need to be worked out in the contract ahead of time. A common agreement is that the seller will pay for major repairs such as HVAC repair or roof repair and the renters will cover minor repairs, meaning repairs that cost less than $200.
6. You Can Move in Much Faster Than With Traditional Mortgages
When you buy a house with a traditional mortgage, the process can drag on for a long time. Between the time when you make an offer on a house and you move into it, several months can go by. It can take even longer to close if you are buying a foreclosed home or a house through a short sale.
If you enter a rent to own agreement, you can typically move-in within a week or two of the closing. If you need housing in a short amount of time and don’t want to spend months waiting to move into your dream house, this could make a lot of sense.
Rent to Own Homes: Is It the Right Choice For You?
As you can see, there are a lot of pros when it comes to rent to own homes. For people who have bad credit but would like to be a home buyer, it can be an avenue to ownership.
Rent to own homes can be the right circumstance for some individuals or families. Has this list of benefits has you convinced that this alternative housing model is right for you?
If so, click here to get more info about rent-to-own homes in Texas!