In the U.S., over 100 million people are renting their homes, but this can’t dispute the fact that most of them would like to own their homes. Owning a home, however, is easier said than done. Unless you have a pile of cash lying around somewhere, you’ll need a mortgage.
A mortgage requires a good credit score, a recommended 20% down payment, and a plethora of other things you may not have.
However, what if you had a viable alternative to own a home, like rent-to-own? What rent to own homes pros and cons should you be aware of before considering this option? This sounds like the perfect arrangement, right?
How Does Rent-to-Own Work?
There is more to rent-to-own properties than meets the eye, which means you need to get an in-depth understand of the whole concept before making a decision. Rent-to-own contracts, also known as lease purchase or lease option agreements, are contracts between renters and homeowners.
Such a contract stipulates that a portion of the rent will be credited to the purchase of the house. The question is, should you rent to own? Let’s look at the rent to own homes pros and cons.
The Pros of Rent to Own Homes
There are many benefits of rent to own homes, and a lot of people have resolved to this solution. Go through them to see whether this is an option you would consider for owning a home if you don’t qualify for the traditional route.
You Can Purchase a Home With Poor Credit
One of the most significant benefits of rent to own homes is that you can make a deal even when you have a poor credit score. If you have been looking for ways to acquire a home through a mortgage to no avail to a low credit score. This will present you with an opportunity to rebuild your credit and increase your chances of qualifying for a mortgage later on.
You Can Lock in a Purchase Price
If you’re currently living in a volatile market where home prices rise frequently, a rent to own purchase option can be excellent. With this contract, you’ll have the opportunity to lock in prices at the current value even if the purchase will take place a few years from now.
The best thing about it is that if the prices fall, you also have the option to back out and go for a lower price. Of course, you have to consider all the clauses stipulated in the contract that will allow you to cancel the agreement.
You Get to Test Out the Property
One of the major pros of rent to own homes is being able to sample the property before purchase. When buying a home through a mortgage, the only way you can gauge the property and detect problems and potential deficiencies is through a home inspection.
With the rent to own option, you get to live in the house long enough for you to decide whether this is where you want to live for the next few years or the rent of your life. You’ll get to sample the neighborhood and discover issues with that area that would make you change your mind.
You Don’t Need to Keep Moving
With a rent to own option, you don’t need to move every time your lease agreement expires like you may need to when you rent. This means that you can commit yourself to community or neighborhood projects without having to worry about leaving everything behind.
Once you secure an agreement with the landlord, then you may never have to move again. Even if you do purchase another home in the future, you’ll still get to live in one place for as long as you want.
Opportunity to Create Purchasing Equity
There are many rent to own pros and cons, and one of the biggest pros is that you can create purchasing equity as you rent to own. The thing is, you may not get to build equity like a homeowner would with every payment made, but the rental payments will create equity towards the purchase.
For instance, if the contract will run for a few years, you’ll have accumulated enough payments to act as a down payment for the purchase. Most people also opt to put money in a savings account, then use it towards the purchase and reduce the overall price significantly.
You’ll Start Living on the Property Immediately
A rent to own contract is similar to a lease in the sense that you can move in as soon as you come to an agreement. Once you find a house you like, you don’t have to wait for the mortgage and inspections like you would when purchasing a home. Once you finalize the terms of your agreement, you can move in right away.
The Cons of Rent to Own Homes
Just like there are many benefits of rent to own homes, there are downsides as well. Let’s look at the cons of rent to own homes and help you make an informed decision.
You Get Zero Refunds
Once you enter into a lease of purchase agreement, you will forfeit a portion of the rent you contribute to the purchase should you back out of the deal. In most cases, the initial premium payments on rent are non-refundable, and the seller may keep the money if the purchase does not push through.
You’re Likely to Pay a Higher Purchase Price
When you buy a home through a rent to own agreement, you need to understand that most sellers offer their properties at a higher price. This is due to the fact that this kind of agreement poses a higher risk. You may have to pay up to 10% more than you would if you were purchasing a home outright.
This May Be a Financial Gamble
As a buyer, you’ll be taking a gamble with this agreement with the hope that nothing will impact your financial situation in the future. Even with the intention of improving your credit score, it could take a very long time, and anticipating that you may get a raise or a different source of income by then is a risk as it may not work out.
You’ll Have Less Control Over the House
When you sign a rent to own agreement, you’ll not be completing a formal purchase. This will be more like a tenant relationship with your landlord, which means they will still have control over the house. If the landlord stops making their mortgage payments, they may lose the house through foreclosure, and if they lose the property, it’ll impact your decision to purchase.
Rent to Own Homes Pros and Cons
If you have been looking into various homeownership options, these are the rent to own homes pros and cons you need to be aware of. It’s crucial that you weigh your options depending on your credit score and whether you make timely payments every time before you decide to go down this route.
If you feel this is an option you would like to explore, please contact us today, and we’ll guide you through the process.