Are you thinking about buying a house but aren't quite sure you're financially ready? Maybe you think you like a particular town but don't know if you'll get sick of the location?
Purchasing a home is a significant responsibility and not one to take lightly. It is never a good idea to make such a significant purchase if you're not one hundred percent sold.
You know that renting is really like throwing money out the window, so what is the alternative? Maybe a rent to own home could be the solution?
Is renting to own a home something you have ever thought about? It could be worth exploring. Renting to own a home is a popular choice for many people. It has many benefits, but there are also some things to be aware of.
Let's take a look at the most essential things you need to know including the pros and cons for this living arrangement.
What Does Renting to Own Mean and How Does it Work?
When renting to own there are two type of contracts you need to be familiar with. They are a lease option agreement and a lease-purchase agreement.
A lease-option agreement allows the tenant to rent the property for a specified amount of time and then at the end of the lease they will have the option to purchase. A tenant is not obligated to buy with a lease-option contract.
A lease-purchase agreement is different. It will require a tenant to purchase the property from the owner once the lease period is over. By not going through with the purchase you would be in breach of your contract. The seller could sue for performance.
Keep in mind the seller is going to be motivated to sell to you since they will not be paying a commission to a real estate agent and other home selling expenses. Having to put the home on the market after thinking they have a buyer will not be pleasant.
It is vital to know that you REALLY want to purchase the home when entering into a lease purchase agreement. Even though you have been living in the home it is crucial to do some of the normal due diligence you would with any home such as hiring a professional home inspector.
What Are The Pros and Cons of Renting to Own
Let's go over the upsides and downsides of a rent to own property. After all these items should be the basis of your decision on whether it is the right move for you.
Pros of Renting to Own
Renting to own allows you to get your financial house in order. If your credit scores are not the best in the world or you don't have a solid down payment, renting to own could be a great solution.
By having the additional time, you can work on increasing your credit score and socking away extra money.
When you rent to own a house, you can get to know the area well. Is this really where you want to live? Do you see yourself wanting to own the property in the long term? Is it close enough to work? If you have or are planning to have kids are the schools considered excellent?
Save on moving costs. If you love the property, you won't have to worry about an expensive move. You'll also save on all the aggravation of changing your address and then telling everyone you have moved.
You will be locking in the purchase price. If the market heads upwards during your lease period, you will already have instant equity when you become the owner.
With rent to own homes part of your rent will go towards your down payment. It allows you to save money and have additional built-in equity for the purchase.
Cons of Renting to Own
Real Estate values could drop. If you go with a lease purchase agreement and the real estate market drops in value, you will be stuck with paying for a property that is no longer worth what you thought.
You could lose money. If you decide that the home isn't what you thought it would be and back out you could lose your down payment funds.
You'll be required to get a mortgage when the lease ends. If you have not gotten your finances in order, you might be forced into a purchase you're really not ready to take on.
In some circumstances, renting to own can be a great way to get into a nice home and start building equity. Going this route also allows you to get a feel for a home.
It becomes almost like a tryout. You can get a clear understanding of the homes quirks along with the positives and negatives of the surrounding area.
Whenever entering into any kind of rent to own agreement it is highly advisable to have the contract looked over by a real estate attorney. A real estate lawyer will be able to protect your interests and make sure you aren't locking yourself into a bad arrangement.
It will be well worth the money spent to have a legal set of eyes advising you.