Renting to own gives a potential homebuyer the opportunity to build equity in a house they want without having to worry about a mortgage and down payment. However, this option should be treated like any other housing contract by obtaining a real estate attorney and doing a home inspection and title search.
You’ll get a cheaper house
Owning a house is a dream of many renters. But achieving this goal can be difficult. It can take years of scrimping and saving to squirrel away a down payment, as well as careful spending to maintain a good credit score.
However, a lease-option can make it easier for you to purchase a home. It typically offers you the option to buy the property at the end of your lease term, for a certain price. A portion of your monthly rent will usually be credited toward the purchase price, and some homeowners even offer an option fee.
Despite this, it’s important to perform your due diligence as you would on any other home purchase. That means ordering a property appraisal. It’s important to know what the home is worth so that you don’t overpay. The property’s value could also decline over the course of your lease, making it less attractive for you to purchase. If you don’t purchase the home, you’ll lose any down payment that you’ve built up.
You’ll be able to save for a down payment
If you can’t qualify for a mortgage now, or you know that your credit history will be improved soon, renting-to-own might seem like a way to get into the house you want without risking not being approved for a loan. However, it’s not so cut-and-dry. When you agree to a rent-to-own contract, some or all of your monthly lease amount may go toward your purchase at the end. In addition, if you miss payments in a rent-to-own agreement, you’ll lose your option fee and rental credit.
The best thing to do is to keep saving for a down payment, while also paying down debt and improving your credit score and history. If you’re a good tenant, you could even ask your landlord for a rent reduction, especially if you can prove that you’re working toward homeownership. This will make you a more attractive prospect when you’re ready to apply for a mortgage. It’s worth it to wait!
You’ll be able to get a mortgage
Renting to own can help you build up credit and savings, but it’s not a good option for everyone. If you have a history of bankruptcy, foreclosures, or repossessions, mortgage lenders are likely to decline your application. Also, if home prices fall, you might not be able to buy the house at the agreed-upon price.
Another downside is that if you change your mind about purchasing the property, you’ll lose all the money that was earmarked toward home equity. That’s because most lease-to-own contracts stipulate that the seller gets to keep all the money that was earmarked for purchase when the contract expires. The best way to avoid these issues is to save up a lot of money and then apply for a mortgage at the end of your rental term. This method may be more expensive than buying a house straightaway, but it will give you the best chance of securing a mortgage. Also, this method will eliminate buyer competition. For more info I’ll suggest you visit the website how does rent to own work.
You’ll be able to get a better mortgage rate
When you buy a home, you typically need to have a decent credit score and money for a down payment. For those who aren’t ready for a traditional mortgage, renting to own can provide breathing room while building toward homeownership.
However, if you sign a rent-to-own contract with an inflated purchase price, you could end up paying more than the home is actually worth. That’s because most lease-option agreements name the home’s purchase price upfront, and it’s not uncommon for that to be based on future value projections.
Moreover, many rent-to-own agreements name whether an option fee or a percentage of the monthly rent payments are applied toward the home’s purchase price. That means if you don’t buy the house when the lease is up, you could lose the down payment you’ve built up. That’s a big risk to take. That’s why it’s important to do your homework before jumping into a lease-option contract. You should also make sure the property you’re considering has been professionally inspected and appraised.