Renting-to-own is an option that many have been considering lately, especially with the economy the way it is. So, what are the pros and cons of this option? Is it a good choice for you?
These deals, also called rent-to-own and lease-option, usually require buyers to pay extra rents each month plus up-front fees of about 5% of the purchase price. The regular rent then goes in owner’s pocket (presumably to pay the mortgage), but the additional payments are used to buy down the price of the home. [Source: CNNMoney.com]
- Renting-to-own is not as big of a commitment as purchasing a home up front. Typically, leases run for at least a year.
- It allows folks to “try out” different homes in different neighborhoods to find out which one will suit them best.
- It also allows for buyers to build up some good credit and a down payment while they are in the rental period.
- If the buyers rent a home and end up closing on the purchase deal, they have likely already built up some equity in the home. Many sellers will have a contract stating that the buyers will put a specific amount of money toward their purchase per month. Once the deal is closed, the buyers will already have that built in.
- You need a good contract and agreement between both buyer and seller.
- If the buyers fall behind on payments, they have little protection. Hence, they could get kicked out of the home.
- If the buyers cannot get financing by the time the rental period is over, they will have to forfeit all the money they have put toward the home.
- Locking in a total purchase price at the beginning of the agreement could turn out to be a bad deal in the end if home prices fall.
- Some sellers may face foreclosure during the rental period, so the buyers may face eviction and other nasty problems along the way.
If you have any questions about purchasing a home, or home that are currently offered as rent-to-own, let us know! We’re happy to help.