Is a Rent-to-Own Home Is a Good Option?
Most first-time buyers today are intimidated by the homebuying process. Not only is each step more complicated than the last, but you need a huge chunk of cash to get started unless you’re planning to purchase a home with less than 20 percent down. That’s why so many people look to rent-to-own schemes in order to afford their first home.
Is rent-to-own a good option? Why might you consider this instead of other traditional home buying options? In this guide, we’ll talk about how a rent-to-own agreement works and whether or not it’s the right choice for you.
What Is Rent-to-Own?
A rent-to-own agreement is a type of deal in which you commit to renting a property for a period of time. What makes this different from a traditional renters lease is that you have the option of buying the home before the lease runs out.
In your lease agreement, you’ll have the right to buy the home either before or when the lease expires. If you pay rent throughout the duration of your least, usually a percentage of this payment is applied to the purchase price. This could help you afford your down payment much more easily than if you were saving on your own. With the average downpayment on a home today being 6% of the purchase price, it makes sense to look for an alternative.
Pros of Rent-to-Own
Why might you consider this type of agreement? There are a few specific advantages that make this an appealing choice for many buyers, particularly those who might not have large savings or a high credit score.
- Lower credit qualifications – If you’re not able to qualify for a home loan on your own, this is an option that allows you to rebuild your credit score. Once it’s finally time to buy the home you live in, you’ve had a while to improve your score.
- Locked in price – Another benefit is that you’re able to lock in a purchase price. If you’re living somewhere that’s experiencing rising home costs, it might make sense to agree on a purchase price in advance through a rent-to-own agreement.
- Try before you buy – There are a lot of advantages to trying a home before you buy, and this isn’t something you can usually enjoy if you’re not in a rent-to-buy agreement. If there are any problems with the house, you’ll know about them before you buy.
- Equity – Finally, renters don’t build equity like homeowners. However, with a rent-to-buy arrangement, usually, a portion of the rent will be put towards the purchase price which is similar to building equity.
Cons of Rent-to-Own
Like most things, it pays to dig a little deeper. On the surface, a rent-to-own agreement might sound like a great deal, but there are a few drawbacks to consider.
- Lose money – There’s a large risk of forfeiting your money if you choose not to buy the home for any reason. All that extra money paid in rent will be gone, and this could make it hard to find another property you can afford.
- Less control – While you’re renting, you also have less control of the property. You won’t be in charge of improvements or other things that might be important to you.
- Maintenance – Many times rent-to-own agreements include some forms of maintenance and upkeep that you wouldn’t have if you were renting a home with a traditional lease.
- Higher rent – Because you’ll be putting a portion of rent towards your down payment, you can expect to pay more each month.
- Risk of scams – Finally, many rent-to-own agreements are prone to scams. These are an appealing way to take advantage of renters, so you’ll want to be cautious.
Is This Agreement Right for You?
Ultimately, it’s up to you to decide what’s the best option for you when buying a home. While a rent-to-own home might sound great on paper, you could always rent a home and save on your own while building your downpayment. Unless your housing market costs are rising quickly, it likely doesn’t make sense to enter a rent-to-own agreement today.
However, it’s good to know you have options. First-time homebuyers don’t need to settle for traditional methods. There are so many ways to make the most of buying a new home today. What will you decide?