Are you struggling to find your way to buying even a starter home?
Between 2010 and 2016, the share of US homes bought by first-time home buyers fell from around 50% to around 35%. That suggests there’s a large number of first-time buyers out there who are struggling to buy a home. Is it time for more home-buying solutions?
Rent to own houses offers one alternative. Let’s take a look at the advantages and disadvantages of rent to own homes below.
What Is Rent to Own?
Not everyone can afford or is even qualified to purchase a property. The steep costs involved in house buying are a barrier, as is the process of getting a home loan.
Would-be buyers with bad credit or a weak financial situation can find themselves locked out of the market.
The declining proportion of first-time homebuyers suggests that purchasing a home is only growing more difficult.
That’s where rent to own homes come in.
Rent to own properties (you can find some at this website) offer an alternative method of buying a home – one that more closely resembles renting. The difference between renting and renting to own is that the occupier has the option to buy the home before the lease expires.
The Pros and Cons of Rent to Own
Renting to own comes with its pros and cons. It won’t be the right choice for everyone, but it can help struggling buyers into the property market.
Let’s take a closer look below at the pros and cons of rent to own agreements.
Pro: Buy with Bad Credit
If you have a weak credit rating, you can struggle to even rent, let alone buy.
The reality is that a huge number of people find themselves priced out of obtaining a mortgage thanks to a bad credit score. In many cases, the negative hits to their credit aren’t even due to factors within their control.
The inherent unfairness of this leaves potential buyers with few options.
With a rent to own home, a potential buyer can obtain a property without the same credit checks they’d need to undergo for a mortgage. That allows them to get their foot on the ladder.
Some buyers know their weak financial position is only temporary. Renting to own can allow them to snap up a property and bide their time until their credit score is in a better place.
Pro: No Moving Delays
Purchasing a house is up there with some of the most stressful events in life.
Months of negotiations can fall through in a heartbeat, so there’s always an element of anxiety until all parties settle the agreement.
Renting to own can skip this tumultuous part of buying a house. Buyers can instead get access to the house almost straight away, reducing the stress of moving home.
It also reduces the chance that another interested buyer will snap up the property in the time it takes to put the funds together and secure an agreement.
Pro: Rent Becomes Investment
One of the big drawbacks of traditional renting is that it’s a consistent loss of cash.
Nothing comes of renting except maintaining a roof over your head. That’s a lot of money to pay for little long-term benefit. The money spent on renting is simply gone.
The key to any good investment is to make money work for you and not the other way around.
Rent to own works on this same principle, at least for those agreements where a portion of the rate goes to the final purchase price.
Instead of lost money, your rent then becomes an investment. You escape the treadmill of earning money to lose money, instead shifting a portion of it into a long-term reward.
Pro: Current Value
It’s an intrinsic trait of the property market that home values will shift over time – that’s what makes property such an attractive investment.
For buyers, changing home values can result in disappointment as a home moves beyond their buying power. That’s where rent to own can shine.
By obtaining a home on a rent to own basis, you can gain the home for immediate use at its current market value.
If you wouldn’t otherwise have the funds to buy a home for a year or two later, this can make a huge difference.
Pro: Home Test
Have you ever wanted to take a house for a spin, like you would a car?
It’s rare that buyers get a chance to do anything like that. Yet buying a home is a personal choice that could resonate through your life for years to come. With a choice of that significance, it’s helpful to have some time to make your decision.
With rent to own, you can test out a house before you put your name on the deed. In the lease period, you’ll occupy the home like a renter, and you can choose not to purchase when the lease expires.
That gives buyers the opportunity to figure out the “personality” of the home and pick up on any frustrations you’ll only feel once the honeymoon period
Con: Higher Rent
While rent to own agreements can offset the problem of securing a mortgage, buyers still have a few financial realities to face.
Those renting to own can usually expect to pay higher rent than for a similar rented property. That higher rent does serve a purpose, as some of it goes toward the final purchase price of the property.
But for buyers already struggling to secure themselves, it may present an extra financial burden. In those circumstances, renting may present a better option while you bring your costs under control.
Con: Option Fee
The financial implication of rent to own also carries through to what’s known as the option fee.
The option fee is a kind of security deposit the buyer puts down at the start of the contract to secure the agreement.
The option fee is usually negotiable, though it can be a hefty percentage of the final purchase price. The option fee is also non-refundable, so in the event that the agreement doesn’t go through, the buyer will still have lost out.
Whether the option fee reduces the cost of the final purchase price also varies from agreement to agreement.
Con: The Fine Print
Buyers need to pay careful attention to the fine print when they enter into a rent to own agreement. Otherwise, they could find themselves on the wrong end of some surprise contractual cons.
The nature of the lease is a common point of contention. Lease option agreements give the buyer the right to purchase the property when the lease expires.
A lease purchase agreement means the buyer is obligated to buy the home at the end of the lease period. This can leave the buyer trapped into buying a home they no longer want.
Maintenance agreements may also cause problems. It’s typical for a landlord to take on maintenance of the home during the rental period, much like a standard rented property. But the contract will contain the details of the rental period, and this may vary.
Rent to own contracts may also place some steep penalties on late payments. In some cases, they may even result in the cancellation of the contract. The practical impact on the buyer is they’ll lose the home and any payments they may have made toward its eventual purchase.
Con: Rent to Own Scams
Sadly, rent to own buyers are sometimes the target of scams.
There are a number of common rent to own scams. A buyer who wants to enter into a rent to own agreement must do the research to know they’re working with someone legitimate.
Buyers can lose out in a huge way through rent to own scams. If the money they pay in rent toward the purchase of the property isn’t handled by a trustworthy party, then it could disappear – along with their rights to the property.
Rent to own as a concept seems to attract con artists. A buyer will need to take special care to find and vet an above-board rent to own seller.
It’s advisable to have a lawyer on hand to review any contracts before they’re signed. This can protect you against fraud and the disappointment of losing out on a home.
Rent to Own Houses: The Way Forward?
Could rent to own houses be the way forward for you? This guide should give you some idea. By knowing the pros and cons, you can make an educated decision on whether rent to own suits your circumstances.
Looking for more advice on purchases a home? You can find more real estate guides here.