Understanding Rent to Own Homes
Rent to own homes provide you with the opportunity to lease a property for a certain amount of time before deciding whether to purchase it. While many standard leasing periods range from two- to- five years, specific timeframes and eligibility requirements will vary by seller. However, you can typically rent-to-own even if your credit score is low, as long as you pass a background check and can afford to pay rent on the home. By entering into a rent to own contract with a seller or landlord, you can build your credit, save money for a down payment and prepare yourself for homeownership without committing to the purchase of the home before moving in.
While renting-to-own may be a wise option for some tenants, it may not be the best solution for you if you will not be able to purchase the home at the end of the leasing period. In this type of situation, you would likely spend more money on renting to own the home than you would if you simply rented the property without the option of buying it in the future. To learn more about rent to own agreements and how they can benefit you, review the information below.
Learn About Types of Rent to Own Contracts
Before you agree to rent to own a home, you and the seller must discuss the specific terms of your leasing contract. As part of your discussion, you must find out if the seller will require you to purchase the property in the future, or whether you can rent the home for a certain amount of time with the option to purchase it after the leasing period ends.
What is a Lease with the Option to Buy?
A rent to own contract that provides you with the option to purchase the home after the leasing period ends is the safest deal for most tenants, as this allows you to live in a property for a designated amount of time before deciding whether to buy it. During the rent-to-own leasing period, you can get a better idea of what your expenses would be like if you were to purchase the home in the future, and you can familiarize yourself with the neighborhood before deciding whether to move there permanently. With this type of agreement, you also receive the right to purchase the home before the lease ends, or you can walk away from the contract if you are no longer interested.
What is a Lease Purchase Agreement?
Unlike a rent to buy contract that provides you with the option to purchase the home before the leasing period ends, this type of agreement requires you to purchase the property, even if you are no longer interested in living there. With these types of rent to buy contracts, the seller could require you to purchase the home, regardless of whether you can afford to do so. To protect yourself from future obligation, ask a real estate attorney to review your contract, as he or she will be able to help you to understand your rights.
Find Out About Requirements for Lease to Own Homes
The eligibility criteria for most rent to own homes is more lenient than if you were to apply for a mortgage. These homes can be an excellent option if you need to improve your credit score before purchasing a home. To qualify for this type of rental agreement, you typically need to meet several basic requirements, including the following:
- You can agree to rent the home for a designated amount of time, which typically ranges from one- to- three years (or longer).
- You can afford to pay a one-time “option fee”, which generally ranges from 2.5- to- 7 percent of the home’s purchase price.
- You can afford to make timely rental payments.
- You earn a stable income.
- You can improve your credit score before the leasing period ends.
- You can pass a background check.
While a lease with the option to buy allows you to walk away from the property after the leasing period ends, it is important to remember that you will lose all the money you put into the home if you do not decide to purchase it. Therefore, a rent to own contract is best suited for those who are confident that they will purchase the home at the end of the leasing period.
Note: While specific eligibility requirements for rent to buy homes will vary by seller, most will require you to present proof of financial stability when applying. Additionally, the seller will likely complete a background check to verify your trustworthiness.
How to Apply for a Rent to Own Housing Agreement
“Where can I find rent to own homes near me and how do I apply?” may be your next question if you believe that renting-to-own may be the best option for you. Typically, rent-to-own housing opportunities are more difficult to find than traditional listings, as these types of properties only make up about 5 percent of the housing market.
However, you can begin to search for rent to own home listings online, by working with a real estate agent or by contacting sellers who have been unsuccessful in selling their homes. If sellers struggle to sell their homes, they may be willing to rent it out in the meantime.
Before you enter into a rent to own contract, it is important that you take the time to consider your options. This will help you to determine whether renting-to-own is the best decision for you. Additionally, it is important to keep the following questions in mind as you consider whether to rent, buy or rent-to-own:
- Do you already qualify for a home mortgage?
- How long will you need to rent a home before you can afford to buy it?
- How much will your option fee be?
- Will the landlord require you to maintain the home on your own?
- Which type of contract is the seller offering?
While rent to own contracts are excellent options for those who do not qualify for a mortgage or cannot afford to make a down payment on the purchase of a new home, purchasing the home upfront is often a better option for those who can afford to do so.