Who Should Consider Rent-to-Own Option
A rent-to-own agreement can be an excellent option for people who want – but are not financially ready – to become homeowners or Who do not have a good credit. A rent-to-own agreement gives them the chance to get their finances in order (by improving their credit score and saving money for a down payment, for example) while “locking in” the house they’d like to own. If the option money or a percentage of the rent goes toward the purchase price, they also get to start building some equity.
To make rent to own work, potential buyers need to be confident that they’ll be ready to make the purchase when the lease term expires. Otherwise, they will have paid the option money – which could be substantial – and a premium on rent for 12 to 36 months, with nothing to show at the end.
If there’s a good chance would-be buyers still won’t be able to qualify for a mortgage or secure other financing by the time the lease expires, they should instead continue renting (with a “normal” lease), building credit and saving for a down payment. Then, when they’re ready, they can choose from any home on the market in their price range.
The Bottom Line
A rent-to-own agreement allows potential buyers to move into a house (maybe even their dream home) while getting their finances in order to purchase the home several years in the future. It’s not without risks, since they could end up losing money if they don’t (or cannot) buy the property when the lease expires. It’s vital for buyers to read and understand every word of the contract and know exactly what they’re getting into.