Rent-to-Own: Is It a Good Choice?

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]

PROS

  • 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.

CONS

  • 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.

Avatar

About Lisa Oates

Lisa is the creative mind behind The Harrisonburg Homes Team, providing streamlined content management, quality authorship, and graphic design for Harrisonblog. She's passionate about blogging, enjoying life, and a good cup of coffee.

Leave a Reply

Your email address will not be published. Required fields are marked *