Rent to Own
What are rent-to-own properties?
During the typical home buying process, you can purchase a home right after your offer is approved. Most people don’t have the cash to pay the full price of the home up-front, so they instead rely on a mortgage that allows them to pay an initial down payment, then pay the rest of the home off through regular installments. However, even though mortgages are designed to make payment easier for the buyer, it also requires a good credit score and often times, a hefty down payment.
With a rent-to-own property, however, there is no need to pay a large up-front fee, and you won’t need to have a great credit score in order to start looking for homes. With rent-to-own homes, you’ll be renting the property for a set amount of time and have the option to put that money towards a purchase when the lease expires.
Who is rent-to-own for?
Like with any type of buying agreement, everyone will have their own preference, and it may be more financially sound for you to invest in a rent-to-own contract. With this type of agreement, you’ll be able to move into the home right away without having to apply for a credit check, get prequalified, or deal with any of the other paperwork involved with the traditional way of buying a home. Additionally, you’ll be left with several years on your lease agreement in order to work up your credit score and save for a down payment if that’s necessary. After the lease agreement ends (typically one to three years) you’ll be able to choose whether you want to purchase the home or not.
The great part about rent-to-own agreements is that you can still put money towards a home even if you aren’t ready to buy and also gives you a chance to repair your credit score and prepare for a down payment. You should ensure that you have a financial plan in place so that by the end of the lease term, you’re able to pay for the home. A rent-to-own program will give you the ability to lock down a home without already having the financial means to pay for it in full.
Components of a rent-to-own contract
In order to make an educated decision about whether rent-to-own is right for you, you should learn about each component of a rent-to-own agreement so that you can compare it to the traditional home buying process.
Option money: Option money is a fee submitted to the seller by the potential buyer giving him or her the option to buy the home after the lease is over. This gives a potential buyer the right to buy the home after the lease, but is not obligated to buy it.
Rent: With a rent-to-own property, you will have a set rent payment rather than a mortgage payment. Each monthly payment will have a certain percentage applied to the purchase price for if you choose to purchase the home.
Other payments: Since the home still belongs to the seller, other costs like association fees, taxes, and insurance may still be paid by the seller, depending on what was stated in the agreement. However, the potential buyer will still need to have renter’s insurance in order to cover personal property. Make sure you understand how the home’s maintenance is handled in the contract before signing.
Purchase: Once you’ve come to the end of your lease agreement, you can choose to buy the home. If the buyer is unable to secure financing at the end of the lease, the option to purchase the home will expire.
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