Rent-to-Own Home Right for You?
When you aren’t in the position to finance a traditional mortgage or have a low credit score, a rent to own home could be right for you. How long you plan to live in the area and the stability of your employment are big factors in whether or not you can afford to buy a home.
Understand the Rent to-own Home Option
A rent-to-own home is exactly as it sounds; you rent a home, or property, and retain the right to purchase it after a set period of time, typically within three years. As a renter/buyer, you pay an option fee ranging from 1% to 5% of the overall purchase price, which is applied toward the down payment. Additionally, any rent or rent premium you pay during the course of your occupancy would count towards your mortgage principal should you exercise your option to buy, which puts you ahead of the game.
Discover the Benefits of a Rent-to-own Home
In lieu of a traditional mortgage, buying a home through a rent-to-own option may be appealing if your circumstances require a little flexibility. When unsteady employment or uncertain financial landscape may leave you stuck in a mortgage, having the choice to forego purchasing the property makes it a safe alternative to simply leasing. In addition, your credit score doesn’t necessarily come into play until you’re ready to purchase the property, at which time you’d apply for a mortgage.
Recognize the Risks of a Rent-to-own Home
The benefits of opting for a rent-to-own agreement will only apply if you exercise the option to purchase the property. It’s also important to realize that if you choose not to buy, you’re giving up the option fee and rent premiums paid throughout the course of your residency, which translate into profit for the seller.
Before you decide if a rent-to-own home option is right for you, understand that the sale price you agree upon at the beginning of the contract locks you into the purchase amount after the contract period is up – regardless of whether the value of the home has gone up or down.
There are resources that can help you understand how applying for a mortgage loan might impact your credit and help you decide if you’re ready to buy a new home. And, if you do find that the home you’re renting is right for you, begin the mortgage loan process two months before your contract is up to ensure financing is in place when you’re ready to make it all your own.