Rent-To-Own: An Alternative to Traditional Homeownership

Purchasing a home is often the largest investment an individual will make, and the process has significantly evolved over the last decade. While many aspire to own their own home, various factors, such as poor credit, self-employment, or insufficient down payment, can impede their efforts. In such cases, renting to own may prove to be a viable alternative.

What is Rent-To-Own?

Renting to own is precisely what it sounds like - you rent your future home for a specified period and then purchase it at a later date. The idea is that, over time, you will accumulate enough down payment or improve your credit score to secure a mortgage from a lender. A portion of the rent paid goes towards building your equity in the property, ensuring that you exit the rent-to-own program with more than you started with. 

Renting to own also provides individuals with the necessary time to repair their credit. Suppose unexpected financial obligations have left you with a massive credit card bill. In that case, renting to own affords you ample time to restore your credit score and regain financial stability.

Types of Rent-To-Own Contracts

Two types of rent-to-own contracts exist: the lease option contract and the lease agreement contract. The option contract gives you the option to pay a lump sum to buy out the home after a certain amount of time, with the freedom to change your mind. The agreement is legally binding, meaning that you must purchase the home unless you want to spend thousands of dollars on legal fees to find a way around it.

Pros and Cons

As with everything, there are pros and cons to renting to own. One advantage is that it enables you to build up your credit score and establish yourself for credit products. This can help you secure a mortgage, which may have been challenging previously. 

Additionally, a portion of your rent payments goes towards building your equity, thereby increasing your chances of getting approved for a mortgage. You can also lock in a purchase price for the home, ensuring that you are not taken aback by sudden market changes.

However, renting to own does have its downsides. You are responsible for any upkeep or repair the home needs, which can add large amounts of fees and stress. If you do not purchase the property with a lease option contract, you lose all the money accumulated through the payments. Additionally, purchasing the home at a locked-in price may sometimes result in inflated costs, while the unpredictability of the market can lead to higher monthly payments.

We can help!

Before making any rent-to-own decisions, it is best to speak with a professional and weigh all the pros and cons, as they vary for each individual's unique circumstances. Contacting a real estate professional can help guide you through the process and connect you with other professionals who can assist you in making financially sound decisions.

If you have any questions or inquiries, we are here to help. Please fill out the form link to get started, and one of our agents or office managers will be in touch with you.

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