People usually think you only have two options for housing: renting and buying. But there’s another way that many people need to be made aware of.
Rent-to-own is an alternative way to purchase a home that has been getting a lot of attention lately because of its benefits.
But what exactly is rent-to-own, and are there any downsides to it? That’s what we’ll be discussing in length.
Answering What Rent-To-Own Is
Rent-to-own is an agreement between a renter and landlord that after a few years of renting (typically 1 to 3 years), the renter will consider buying the property.
It typically involves higher rental costs; in most cases, a small portion of the rent goes to the property’s purchase price. It also consists of negotiating the home’s price before signing the lease.
Rent-to-own also means you, the renter, will be paying an option fee, usually nonrefundable, that will go toward the home’s price.
Lease-Option vs. Lease-Purchase Agreement
A lease option contract is an agreement between you and the landlord that allows you to rent the real estate property with the option of purchasing the home at a later date. Under this contract, there is no obligation to buy the house once the lease expires.
A lease-purchase contract is an agreement that states you will rent the property for a certain amount of time and then purchase the property once the lease expires. Under this contract, you must buy the home after the renting period ends.
Who Covers Maintenance?
It varies. Most landlords will have you, the renter and future owner, take care of maintenance. Others will take care of it entirely, and some might split the costs with you.
If you’re considering rent-to-own, discuss maintenance coverage with your landlord.
Who is Rent-to-Own For?
Rent to own is for people interested in purchasing a home but cannot do so due to the current state of their finances.
It gives these potential buyers a chance to fix their credit, save up for a down payment, and give them sufficient time to get pre-approved.
So What are the Benefits?
For first-time homebuyers, you can save up for a down payment, select a home you would like to own, and pay off a small amount of the listing price with your rent.
Remember that the amount you pay off the rent varies from agreement to agreement. Not all of your rent goes to paying off the home’s price.
Are There Any Downsides?
While it’s affordable for potential homebuyers, you’re paying higher rent and a nonrefundable option fee if you decide not to purchase the home.
If you are in charge of maintenance, you will be paying for all repairs.
In addition, you need to find financing for the home to purchase the property.
Is Rent-To-Own Right For You?
It depends on your circumstances. If you’re looking to buy a home but don’t have the means to do it, perhaps rent-to-own might be for you.
But if you have already purchased a home and have the means to buy another, it’s best to skip over the renting phase and purchase the home outright.
Ultimately, you’re the only one who knows your circumstances.
So do your research, discuss your decisions with your loved ones, and most importantly, don’t rush your decision.