Are you considering renting-to-own a home? Renting-to-own provides an opportunity for individuals, who may not have otherwise qualified for a mortgage through traditional means, to become homeowners. This means those with less than perfect credit, or down payment troubles, can qualify. As with any large financial investment, however, there are risks. Let’s discuss things you need to know before renting-to-own a home.
What is a Rent-to-Own Home?
A rent-to-own home is a real estate lease-to-own agreement in which the individual pays additional fees on top of their rent that goes toward the purchase price of a home. You can then choose to buy the home after a set number of years paying into the interest of the home. For more information, read our more detailed article: What is a Rent to Own Home?
What are the benefits of a rent-to-own?
There are many benefits to renting-to-own your home. Some common ones are:
- Individuals who do not qualify for a mortgage can still become homeowners.
- You do not need a perfect credit score.
- The down payment and monthly fees are negotiable.
- You can begin living in the home right away.
What are some drawbacks to renting-to-own?
There are some potential drawbacks to renting-to-own that you should be aware of. Most commonly:
- With the added monthly fees to go toward the home purchase price, you may (in the long run) pay more than you would have if buying it outright.
- It’s likely you will still need some form of down payment to show your investment interest.
- You should hire a contract lawyer who will make sure the lease agreement is favorable to both the buyer and the seller.
These drawbacks are situational. For example, buyers may find that while renting-to-own costs more than simply renting, it ends up being a better deal than an FHA or mortgage with PMI throughout the life of the loan. We suggest you examine your particular situation closely to make the best decision for your circumstances. Because each rent-to-own can be different, you should first consider finding a desirable rent-to-own home near you, and then learn more about the owner’s particular requests.
Many rent-to-own homes also require a form of down payment or deposit. This generally goes directly toward the purchase price of the home, and is negotiable with the owner of the home. If you are unsure about your negotiation skills, a real estate agent may be able to help you with this – but do note that you will have to work out the fees paid to the real estate agent upon successful transaction. Buyers will often find that the down payments for rent-to-own homes are considerably less than the 20% down required by mortgage lenders.
Whichever option you choose, we recommend you research the homes in your area, and the options available to you. Before making a final decision, seek out the advice of those that can help protect your assets, which is an important move when buying any home – regardless of purchase type. To learn more about the process of renting-to-own, read our article “How to Rent-to-Own a Home.”