Having a roof over your head in the modern age comes in a variety of different ways. However, it mostly comes down to either owning your own home or renting a place for an extended period of time until you have saved enough to purchase a place.
Of course, owning a house or an apartment provides much more security and a clear state of mind. It is much easier when you have your name attached to a property as you can plan for the future more freely and concretely. Renting on the other hand also has its benefits, especially when a person is still living alone, studying, or working for a limited time in another city.
Alternatively, there is another thing individuals and families can opt for, which are rent to own homes. This is still a new concept for many people who have never heard of this practice before. In this article, we will tell you more about rent to own homes. If you would like to find out more about this, make sure to visit website.
- 1 What is it and how does it work?
- 2 What to do before signing
- 3 Pros of rent to own homes
- 4 Cons of rent to own homes
What is it and how does it work?
A rent to own home contract allows the tenant to live on the property anywhere from 2 to 5 years, depending on the situation and the need. An upfront fee option is often available. While living in the home, the consumers have to pay rent each month, out of which a small portion goes towards purchasing a home. The purchase option fee can be as much as $15,000, and it goes towards the down payment of the home. In short, the rent to own process combines renting a home and buying a home, where the people involved pay the rent and a small portion of the down payment each month.
What to do before signing
Before you ultimately decide to sign any type of such a contract, you should know some rather important things in order to protect yourself. Make sure to watch out for properties that need heavier repairs and which are obviously in rough shape. You do not want a home that already needs a lot of renovations, let alone years from now.
What is generally advised with rent to own contracts is to hire a home inspection agent before signing. These people are licensed professionals who can identify all the potential problems with the home you plan to become involved with. Therefore, they are your best and safest bet when evaluating a home. In addition, ask for a copy of a recent certified home appraisal, or pay for a new one yourself.
Since research is crucial in such a process, it is very important that you do extensive research on the property, the owner, and the investment company. You should also ask around the neighborhood for the information of former tenants, and inspect the neighborhood for all the things you will need in your daily life.
Next, it is a good idea to check if you can qualify for a loan in the near future. When it is time for the contract, have both a lawyer and a real estate agent review it for any underlying terms and conditions. Lastly, like with everything else, you should try to negotiate a lower option fee and a lower rent payment if possible. Most owners raise the price slightly, especially if they made some changes to the home, and hope that the new customer agrees to it. The real price is always slightly lower, so make sure to check.
Pros of rent to own homes
There are some very beneficial positives of this type of living:
Moving in immediately
Since you will own the home eventually, it means that you are able to move into your new home right away and start decorating however you wish. Whatever you do you will be left with once the home is your own.
Time for credit
Since you will be renting the home for 2 to 5 years before having enough for a down payment, you have a lot of time to improve your credit and qualify for a home loan. This is more than enough time for good credit.
More than a rent
Although it will largely feel like simply paying rent, it is actually also a monthly portion towards paying the full price of the home. Make sure to remember that every once in a while as it is one of the best things about rent to own.
Poor credit still works
Even if your credit is poorer than you would prefer, you can still qualify for this type of contract. It was made for people with lover credits in the first place.
Last but not least, the prices you will be paying will always reflect the current market value, meaning you will actually buy the home for the price it had when you originally signed the contract.
Cons of rent to own homes
In addition, there are some negatives as well:
In some situations, the up-front option fee can be quite large and make the whole contract signing and the process unavailable for the customer. If it cannot be negotiated, the customer has to look elsewhere.
It the owner gets foreclosed on, which is not a likely scenario but still a possible one, you could be forced to leave the home no matter how much you have already paid. This is arguably the worst thing that can happen.
No contract, no fee
If you happen to terminate your rent to home contract at any time before it is completed, you will lose the option fee. If it was a considerable one, you will lose a lot of money that could have been used towards owning a home. Therefore, think about the contract thoroughly.
A mortgage is not guaranteed
A mortgage at the end of the agreement is far from a guarantee even though you completed the contract. You could fail to qualify for the mortgage due to poor credit, which will leave you looking for an alternative plan.
In most situations, the interest rate is higher, meaning you will pay more for the house than you would if you had bought it immediately. However, this can never be escaped with long contracts that span years, no matter what they are for.