The Pros and Cons of Rent to Own Homes
Wishing to buy a home but you have irregular credit histories? The rent-to-own is worth considering.
A couple of years ago, you will almost never hear the term rent-to-own. Homeowners who sell their houses have a lot of prospective buyers with different bids to choose from. Nowadays, it is different. A lot of homeowners are very willing to arrange a rent-to-own agreement with prospective buyers. Some even make deals with those who were turned down by housing loans.
What exactly is renting to own? Its contract requires the buyer to pay a rent to the homeowner monthly, with a part of it going to a home purchase at a much later date. Most of these contracts last two to five years wherein both the property owner and the buyer begin the standard purchase of the home.
A realtor advises that if your house has been in the market for a while, a rent-to-own transaction allows you to move while there is someone in your home producing cash flow for your mortgage.
Pros and cons
Aside from having time to save a good credit record and down payment, the renters have the benefit of "trying out" the home and neighborhood. Since you arrange the selling price and terms before moving in as well, this option allows you to buy the property at a price below the market in a few years. Or if the market value goes down after a few years, the buyer can negotiate with the owner for a lower selling price.
The money you are paying in rent will not all go toward the down payment. The mortgage lenders are those who decide how much of the rent payments you make will be credited towards your down payment and closing costs.
An example will be paying the standard rent of $1,500 and an additional $300 that will be for your home buying credit. So, each month, you will pay $1,800. When your lease ends, let's say after 3 years, you will have a total of $10,800 set aside. This amount will be used for the down payment or closing costs.
What if at the end of the lease you do not want to buy the house? If this is what you decide in the end, there is a possibility that you will not get a refund.
For the sellers, the benefits are having an enthusiastic buyer and a long-term tenant who will take care of the home more than a standard tenant. Though there is a risk of the tenant deciding not to buy your house at the end of the lease, causing you to go through the listing process once again.