If your ideal home does not meet your current budget, or you simply cannot afford to purchase a home at this time, it may be worth your while to consider the option of renting-to-own a property. While purchasing a home often requires a stable income, sizeable down payment, mortgage financing, and a good credit score, you may be able to enter into a rent-to-own agreement until you are ready to purchase the home. When you agree to rent-to-own a property, you can settle into the home you wish to purchase in the future while building your credit and saving money for your down payment.
While rent-to-own properties are generally more difficult to find, there are several different ways to rent a home before purchasing it, even if the home is not listed as a rent-to-own property. For instance, you may contact sellers directly to find out whether you may be able to sign a rent-to-own agreement instead of purchasing the property. To learn more about the pros and cons of renting-to-own a home, review the information below.
What does it mean to rent-to-own a home?
When you sign a rent-to-own contract, you agree to rent a property for a designated period of time, rather than purchasing the home with cash or obtaining a home loan. When renting-to-own a home, you make payments on the property, just as you would if you were paying rent. However, a portion of your payments go toward the purchase price of the property, helping you to build equity on the home.
Discover the Pros and Cons of Renting-to-Own Your Home
Before signing a rent-to-own agreement on a property, it is important to consider the pros and cons of doing so. For instance, several notable benefits of renting-to-own a home for a designated amount of time include:
- Renters can save money to put toward the down payment on a home.
- Consumers can build their credit scores while renting a home.
- Renters build equity on a home before purchasing it.
- Consumers can live in the home they plan to purchase, even if they cannot afford to buy it until later.
While a rent-to-own property may be ideal for one buyer, it may not be the best solution for another consumer. Therefore, it is important to consider the following disadvantages of renting-to-own a home:
- Renters must be certain that they will be able to buy the home at the end of the leasing period
- Rent-to-own agreements are not as flexible as traditional leasing contracts
- Properties with rent-to-own agreements are more difficult to find, especially if homes in the area are selling quickly
- Determining the purchase price of a rent-to-own property can be difficult, especially if renters do not negotiate the price of the home at the beginning of the leasing period
- Renters typically need to pay a non-refundable option fee
By paying the non-refundable fee when the rental period begins, renters receive the option to purchase the home at the end of the leasing period. Additionally, some consumers may be able to apply a portion of their option fee toward the cost of purchasing the home, but this is not always the case.
While some rent-to-own contracts may allow consumers to walk away from the home at the end of the leasing period, consumers will lose the full amount of their option fee if they do so. Before signing the rent-to-own agreement, however, it is important for consumers to verify whether they have the option to walk away from the home at the end of the leasing period, or they may be held legally responsible to purchase the property.
Furthermore, it is important to obtain detailed information about the agreement before the beginning of the leasing period, as failure to do so could result in future disagreements between tenants and sellers. For example, agreeing on a purchase price at the beginning of the rental period is beneficial to buyers, but it could be problematic in the future if the value of the home stays the same or decreases.
Find Out How to Negotiate the Purchase Price of a Rent-to-Own Property
As mentioned above, there are pros and cons to setting the purchase price of a home at the beginning of the rental agreement. For instance, determining the purchase price of a home at the start of a leasing contract may benefit the buyer, as he or she will reduce the risk of paying more on the property if its market value increases by the end of the rental period. Additionally, the buyer may feel more comfortable paying rent on the property if he or she knows its purchase price.
As another option, tenants and sellers may agree to decide on a purchase price at the end of the rental agreement. This option is especially beneficial to sellers, as the value of the home may increase throughout the leasing period. At the end of the rental period, sellers may be able to negotiate a higher price based on the current market conditions.
Learn How to Find Available Rent-to-Own Properties
While listings for rent-to-own properties are more difficult to find than those for regular homes, finding a rent-to-own property is not impossible. However, finding a home that comes with a rent-to-own agreement may take a bit more effort on your part. When searching for rent-to-own listings, you can start by visiting home sale and property rental websites, as these often include rent-to-own options as well. In some cases, you may need to pay a membership fee to obtain a list of rent-to-own properties, but other websites may be free to use.
If you cannot find what you are looking for, you may contact sellers on your own to find out whether you may be able to rent-to-own their property. While renting-to-own a property may be more difficult if other homes in the area are selling quickly, you may be able to reach an agreement if the home has remained on the market for a considerable amount of time.
Moreover, another option is available to you if you already rent a home and believe that the current owner would be open to selling the property in the future. If you rent a home that you can see yourself buying in the future, you may suggest the possibility of entering into a rent-to-own agreement if you have a positive relationship with the homeowner.
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