Is Rent to Own the Right Option for You?
Rent to own is an option for those wanting to get into home ownership but may have blemished credit and can't purchase a home right away. A Rent to Own typically means the owner has given the tenant the option to purchase the property for a certain price within a certain time frame. Rent to Owns are structured in many ways. One way is having a portion of the rent going forwards the purchase price or down payment, called Rent Credit.
Rent to Owns may be beneficial for the following reasons
1) Rent credit can assist you in saving for the down payment or applied to purchase price
2) This option can allow you to repair your credit if needed in preparation for the purchase
3) You have exclusive or first right to purchase the property.
4) You can live in the home and feel if this is the home you want to grow with before buying it (test driving the home!)
A Rent to Own is not for everybody.
You're still considered a tenant so landlord/tenant rules apply. The owner has rights to terminate the lease if you do not perform what is agreed in the contract, thereby, losing your deposit.
If you're considering a rent to own, here are some general guidelines:
1. Make sure you set the purchase price and it's clearly stated in the contract. Some have it structured so the price of the property is determined when you exercise the option (they use an appreciation rule of 3-8% market growth). I would caution this if they are unwilling to set a price up front. You don't want to waste months or years living and paying into a property if you don't know the end price of the property.
2. When you exercise the option, you have to be approved for a mortgage loan. Before committing to a rent to own option, speak with a mortgage advisor on your credit/financial situation. This will give you a time frame you need to repair your credit. Remember, most options want a deposit fee and there is a time frame in the option contract. If they set the option time frame for 2 years but your credit will take 3-4 years to repair, you can lose your deposit. Be realistic about your ability to exercise the option and how long it'll take for your credit to be repaired.
3. The rent to own option usually benefits the owners, not the tenants. The Rent to Own is just a lease agreement with an option to purchase it. Therefore, don't be late on your rent payments, not even once because this will reflect whether you will be late on your mortgage payments. Have a lawyer look over the contract before you sign.
