Getting Started with Rent to Own Homes
If you’re sick of renting, it’s natural to start wondering about rent to own homes. The concept can be confusing, however, so this guide will tell you how to navigate the world of rent to own homes.
What Is a Rent to Own Home
Rent to own home is precisely what it sounds like; rather than your rent just going to a landlord every month, it goes towards the owning of the house, and this avoids the large down-payment that is usually required to buy a home through the traditional mortgage route. The tenant and landlord agree that the renter will rent for an agreed amount of time, around 1-3 years, usually. After this period ends, the tenant has the option to buy the house from the landlord at a predetermined price (traditionally discounted by the rent).
How Does Rent to Own Work?
When initiating the process, there will be a non-refundable upfront fee, usually named the ‘option fee,’ which establishes the possibility that you’ll buy the house in the future. This down payment is nowhere near as big as the down payment for a mortgage, however, as it’s usually around the 2-5% purchase price mark.
From there, it depends on which type of rent-to-own contract you choose, as there are two standard ones. A ‘lease option’ awards you the right to buy the property once your tenancy ends. A ‘lease-purchase’ contract usually obliges you to buy the house at the end of your rental.
If you’re not 100% sure you’ll purchase the home at the end of the lease, it’s probably a good idea to go with the ‘lease option’ contract to avoid getting trapped into something you can’t afford. The amount of rent you pay over the designated period turns into ‘rent credit,’ which simply means money put towards the purchase of the house, so you will have less to pay for the house after the tenancy.
Why Is Rent to Own a Good Idea?
Rent to own is a good idea if you don’t want to or don’t have the money for the large deposit required for a mortgage. It’s also great for people with a poor credit score who might not be eligible for a mortgage or bank loan to buy a house. If you’re tired of your money mostly going down the drain with renting, and you’d like to find a rental that you don’t have to move out of at the end of the tenancy, rent-to-own is an excellent idea for you.
Also, if your credit score is poor, this gives you time to fix it before buying a property rather than continuing to waste money on rent.
How to Find Rent to Own Properties
While many property websites have an option for looking for find-to-rent properties, it can be challenging to sift through them, as many properties listed on these websites are strictly either to rent or to purchase.