Home ownership is part of the American dream. Millions of families want a nice home. Unfortunately, the number of Americans with credit problems and the growing number of banks who are rejecting loan applications are growing at a record pace. The economy simply isn’t what it used to be. Many buyers and sellers are finding creative options for selling or purchasing a home, including purchase options, otherwise known as rent to own.
In a rent to own agreement, a buyer would move into a home, pay rent, and build credit towards a down payment to ultimately purchase the home. This is a valuable option for families who may not have the necessary credit score to get a traditional mortgage. Renting to own has a wide range of issues to consider before entering an agreement.
When you’re considering moving into a rent to own property, you’re likely to be charged more than you would if you were renting from a traditional landlord. This is because the lease option, the clause that allows you to buy the house at the end of the rental term, is built into the cost of rent. A portion of your monthly rent will be applied to a down payment on the home.
While you may pay slightly more to rent to own a home each month, the long term savings could be significant. This is because the purchase price will be predetermined before the rental term is up, locking in protection against housing market fluctuations.
For example, assume you’ve agreed to rent-to-own a home for three years before exercising your option to purchase. You come to an agreement with the seller on a price at the end of that term of $200,000. At the end of your rental term, the housing market becomes extremely competitive and surrounding homes are selling for $300,000. As a buyer, you’ll be saving $100,000 on the cost of your new home simply by renting to own and locking in the price.
Rent-to-own housing is a great tool for real estate speculation or families who are simply in a bind and looking to realize the dream of home ownership without dealing with sometimes unrealistic expectations from large banks and mortgage firms. Combine that with the mistrust that the mortgage industry has earned over the last two decades, and renting to own directly from the seller could be a great option!