It’s a seller’s market all across the country and as a result home prices are rising, and competition is increasing. This makes it more difficult to buy a home, especially in areas where prices are already overly-inflated. The combination of needing to have a large down payment and a great credit score in order to compete for a home is locking out many would-be homeowners from the real estate market.
Many individuals learn about the rent-to-own home market after discovering the purchase of real estate is beyond their current means. Rent-to-own homes allow would-be buyers to get a home without the heavy competition, large initial investment, or perfect credit that many need. However, it can be true that many rent-to-own opportunities work in the seller’s favor. This happens when renters are unprepared, or uneducated about the process of leasing to own a property, and unfortunately, get taken advantage of. If you are ready to learn about the rent-to-own real estate process, and do your due diligence when searching for homes and reviewing contracts, rent-to-own homes can work in your favor and be an incredibly smart decision. The key difference between a rent-to-own home being a good idea or a bad idea comes down to educating yourself, which is a fact of life for all financial dealings whether buying or renting.
Why Rent to Own Homes are a Good Idea
Rent-to-own homes are a great idea for anyone who is willing to understand the lease-to-own process, familiarize themselves with common clauses of contracts, and properly negotiate a good deal. If you are already renting and pay your monthly rent on-time, then rent-to-own is the perfect solution. For these individuals, renting to own can save many thousands of dollars, and years spent waiting to buy a home.
Benefits of renting-to-own include:
- You don’t need a large cash down payment.
- You don’t need to be approved for a loan before being accepted.
- You don’t have to settle on investing in a smaller, less appealing home simply because of price.
- You can move in right away rather than waiting years to improve your credit or save money.
- You technically own the home so can paint, decorate and do many things renting prevents.
- Rent-to-own is great for pet-owners who are often declined rentals due to having pets, or charged hefty pet fees and/or pet-rent.
- If the home increases in value by the time you officially purchase it, you are still locked in to the original (affordable) cheaper purchase-price.
When Rent-to-Own may not be the best option for you:
Rent-to-Own homes are a bad idea if you already have a large enough down payment to put down 20% on a home and if you have excellent credit and can be approved for a loan that meets your monthly budget. Rent-to-own homes are best for people who would have difficulty buying a home through traditional means.
The drawbacks of renting-to-own include:
- While you basically own the home you are renting as far as remodels, paint, etc. You won’t actually be the owner who is earning equity until the home is in your name.
- You have a period of time (specified in the contract during your negotiation phase) to improve your credit to the point where you can obtain a loan. If you are unable to do so, you will lose the investment you have made in the property. Be sure to create a contract that gives you ample opportunity to work on your credit.
- Like owning a home, you may be responsible for maintenance. This will need to be discussed with the owner when preparing your contract. Many owners will decide some maintenance items fall on them, while others, such as replacing large appliances, will fall on the resident.
- Rent-to-own properties can be more difficult to find than home sale listings. It’s important to be sure you sign up for a reputable rent-to-own listings service, such as HousingList to obtain the most up-to-date and reliable information.