The Pros and Cons of Rent To Own
Have you heard of rent to own? It’s where you basically rent a house that you chose until you are prepared to purchase it. The rent that you pay contains something called “rent credits” that will be saved after 3 years and be used for the down payment of the house when you are ready to purchase it. It is a useful program that can allow first-time homeowners, people with bad credit and people who may have gone through a divorce and want to build their lives again, to own a house but not have to wait to save for a large down payment. Large down payments would be required if someone were to purchase a house through a bank. Some people have concerns with this program, and I can explain some of the pros and cons of rent to own.
Pros and Cons
A pro of participating in a rent to own program would be the final down payment issue. You do have to provide a down payment with the lease signing $6000 to $12,000, but in comparison to what a bank would require, (15-20% of the price of the house) this is a steal! Like I mentioned earlier, the final down payment is being collected in your rent that it makes it effortless to save for the down payment. For example, if the rent is $1800 a month, roughly $200 to $400 is saved for the future down payment. It’s an easier way to save!
Another pro of this program would be the market price of the home being the same. Let’s say that the agreed-upon purchase of the house at the beginning of the lease is $280,000, this will be the same price at the end of the lease. This will save you in times where the market may go up due to a market upswing, your contract will still be at $280,000, but the value could be much more! You will not have to pay for the increase in value, just what was agreed upon in the beginning.
A con of this particular program could be the rent. Depending on where you would like to purchase your house, the rent could be a bit higher than expected in the area. The surrounding area could have an average rent price of $1500, but since your rent will be including part of your future down payment, the price to rent may be $1500 and up. If you do decide to do this, you have to understand that even though you are paying more per month than a neighbour who would be renting their house, your increase in rent will allow you to save and purchase the house in the near future, where your neighbour will just be renting and never owning that house.
Another con would be the lease and final purchase of the house. In the beginning, you will have to put a small $6000 – $12,000 down payment on the house before you rent it which allows you and the landlord to agree upon the rent to own program. If there is no down payment, it will be a straight rent and would not allow you to make the jump from renter to owner. The lease agreement could last from 3 years or more. If you decide in the second year, you do not want to permanently move into the home, you will forfeit the down payment. You will be in breach of the lease contract and you would not be entitled back to your down payment. But if you were to live in the house for 2 years, why would you want to leave? You have the option to redecorate, remodel and upgrade the house to a certain extent since this will be your future home. If you wanted to paint it, you can! You can make the home comfortable and catered to your likes to make it your home. If you make it your home, there will be no reason for you to leave!
Hopefully, these points will make you reconsider the possibility of rent to own as your answer to home ownership in the near future. You can always buy a house with headaches and stress, but this will give you the opportunity to make this house a home easy and stress-free.