As the prices of real estate continue to drop, buyers are also becoming very practical when it comes to spending money. With that said, a lot of consumers are taking a closer look at rent to own options. This option involves committing to a multi-year house rent with a future opportunity to purchase the property.
The rent-to-own option has grown in popularity over the past few years. This is due to the fact that it benefits both the seller and the buyer. For one, renting is an excellent stepping stone toward owning a house. While this may seem like an excellent option, it is not an option that suits everyone. With that said, before you make any deals, you must first understand how this option works.
How Rent To Own Option Works
Rent to own option is when the renter chooses to buy the property for a predetermined price at the end of the multi-year lease period. As a renter and prospective buyer. You will sign a contract wherein you agree to pay an option fee- which is usually around $5,000. As well as monthly rent and rent premiums to the landlord or home seller. The seller will use your rent payment to pay for his mortgage expenses. The rent premium will be set aside, and it can be used should you choose to purchase the house in the future. The option fee will be your down payment when you are buying the property. Remember that the seller can keep your rent premium and option fee if you decide not to purchase the house.
How Is This Option Appealing To Buyers?
Renting with an option to buy can be very appealing for many buyers, especially those who have trouble getting approve a mortgage. Individuals who have poor credit, low income, don’t have a stable job or lack the down payment can consider this option. Rent to own option gives these potential buyers, such as yourself, an opportunity to own a house while living in it. It also allows you to discover potential problems in the home before making a massive commitment to purchasing it.
The Pitfalls Of Rent To Own Option
Unfortunately, like any other home buying option, rent to own also has its drawbacks and pitfalls. For instance, if you decide not to purchase the house at the end of the lease period, the option fee, as well as the rent premium, won’t reimburse. With that said, you would have paid above market rental fees and have no asset to show for it. Additionally, with this kind of option, you are responsible for the repairs and maintenance during the rental period, and any equity you put into the property won’t be reimbursed.
These are just a few basic details need to understand when it comes to rent to own homes. Renting with an option to buy may seem like a good idea, but you must first weigh the pros and cons before committing.