A rent to own house allows you to rent a home with an option to buy at the end of your lease. Usually, an extra portion of your monthly payments go toward the purchase price.

This can be helpful if you don’t qualify for a mortgage because of credit hiccups or other issues. However, there are some risks to renting a home with the option to own.

  1. You Have the Chance to Experience Life in the House

Rent to own can make sense for buyers who want the stability of a home but haven’t saved up enough money for a down payment yet or aren’t financially qualified for a mortgage. But it’s important to treat rent-to-own contracts (especially lease-purchase agreements) with the same caution as a traditional home purchase.

For example, if your landlord credits part of your rent toward the purchase price of the house, you’re paying more per month than you would in a regular rental contract. And you’ll lose that purchase credit if you pull out of the deal.

Also, if you’re renting to own a property, it’s wise to order an appraisal before you finalize the purchase price. A lender won’t lend you more than the home’s appraised value, so this step protects your investment. And it helps you determine whether or not you’re getting a good deal.

  1. You Can Decline to Buy

If you move into a lease-purchase or lease-option home and decide that it isn’t the one for you, you can decline to buy when your contract expires. You will probably lose your option fee (which is paid up-front or included in each month’s rent payment) and you might not be able to get back the money that was set aside toward a future down payment, but you won’t have to close on a property you no longer want to own.

However, this is a risky strategy if you’re not sure you can qualify for a mortgage at the time your contract expires. In that case, you could be stuck with a property that has lost value over the years, and banks won’t lend on properties with low appraisals. This is why it’s important to have your credit checked and have a professional home inspector inspect the house before you sign anything. The home will likely have deferred maintenance items that may be costly to fix.

  1. You Can Save Money

Owning a home is many people’s dream, but getting the credit score and savings necessary to qualify for a mortgage can take years of scrimping and saving. Renting to own is a way for someone to start building equity in a house they’ll eventually own without the financial challenge of getting a loan and paying down a large down payment. Get more info on how does rent to own work website.

Depending on the agreement, you might pay an upfront option fee or a higher than market rate monthly rent in exchange for a portion of the rental payments that will go toward the purchase price of the home at the end of the lease. In addition, the seller might keep any extra money paid toward the purchase if you don’t exercise the option or buy the house at the end of your lease.

Another concern is that the purchase price you lock in at the beginning of the lease might be based on a projected value rather than an appraisal. That means you could be paying more than the house is worth if local property values decrease.

  1. You Can Get a Down Payment

Depending on the contract, part of your rent payments could go toward a down payment that you can use to buy the home when the lease is up. This can help you break down a seemingly insurmountable financial leap into manageable pieces.

However, if you don’t purchase the house at the end of your lease term, you won’t get the money back from your rent credit or option fee that was applied to the down payment. This is why it’s important to treat any lease-to-own agreement with the same caution as a traditional mortgage.

You may also pay a down payment upfront, which can range from 2% – 7% of the property’s value. While this is negotiable, you should always weigh the pros and cons of this option before deciding whether it’s right for you. If you have any questions about the process, you should consult a real estate agent. They can walk you through the best options and help you negotiate prices.


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