Understanding Rent to Own Homes

Rent to own homes offer an alternative route to homeownership for those who are not yet ready to purchase outright. Before considering this option, it's important to understand the ins and outs of the rent to own process, the potential benefits, and the risks involved.

What Are Rent to Own Homes?

Rent to own homes are properties that give a renter the option to purchase the home they are leasing after a specified period. The arrangement includes a traditional lease agreement coupled with an option to buy the property at a predetermined price before the lease expires.

How Does Rent to Own Work?

Rent to own agreements come in two forms: a lease option agreement and a lease purchase agreement. A lease option gives you the right to purchase the home at the end of the lease term, but it's not obligatory. A lease purchase obliges you to buy the property when the lease ends, leading to potential issues if you're unable to secure financing.

The Process

1. You pay an upfront option fee, typically 2-7% of the purchase price, granting you the option to buy the home later.
2. You agree on a purchase price when signing the lease, which may be higher than the current market value in anticipation of future appreciation.
3. A portion of your monthly rent payments contribute towards the home's purchase price.
4. At the end of the lease, you can choose to buy the home, renegotiate the agreement, or simply move out (depending on the type of agreement).

Advantages of Rent to Own

• Build Equity: Part of your rental payment goes toward the down payment or equity.
• Lock in a Purchase Price: If housing prices rise, you could benefit by locking in a lower price upfront.
• Test Drive the Property: You get to live in the home before deciding to buy, allowing you to assess the neighborhood and the house.
• Time to Improve Credit: If you have less-than-ideal credit, the lease period provides time to repair it before applying for a mortgage.

Risks and Drawbacks

• Higher Costs: Monthly rent payments can be higher than typical rents; moreover, the option fee and a portion of rent are non-refundable if you choose not to purchase.
• Fixed Purchase Price: If the property value falls, you might be locked into an overpriced purchase.
• Loss of Flexibility: Depending on the agreement, you might be required to buy the home or lose the extra money you've paid.
• Maintenance Responsibilities: You might be responsible for maintenance during the rental period, unlike in a typical rental agreement.

Understanding the Contract

Rent to own agreements can be complicated. It's crucial to understand all the terms before signing:

• Option Fee: Determine how much it is and whether it's credited towards the purchase price.
• Rent Premiums: Know how much of your rent goes towards the down payment.
• Home Price: Make sure the agreed-upon price is fair and understand under what conditions it might change.
• Maintenance: Clarify who is responsible for repairs during the lease term.

Who Should Consider Rent to Own?

Rent to own can be a good option if: - You need time to improve your credit score. - You lack a down payment for a traditional mortgage. - You are certain you want to buy but aren't quite ready to commit.

Final Thoughts

Rent to own homes can open doors for potential buyers, but like any financial commitment, it requires careful consideration. Weigh the pros and cons, understand the contract thoroughly, and consult with a real estate attorney or a financial advisor to ensure that this path to homeownership aligns with your financial goals and capabilities. Rent to own isn't for everyone, but with the right conditions, it can be a valuable step towards owning a home.