If owning a home is something you dream about, consider the rent-to-own option. This option works in your favor if your current credit standing is poor, you do not qualify for regular bank financing or if you do not have a large down payment to put down on a home. As with any good thing, renting to own a home does have its benefits and pitfalls.
Getting Started
The process is relatively easier to get started than traditional home financing. Rather than applying for and obtaining a home loan right away, you would negotiate with the person using the rent to own option to sell their property in a set amount of years. Most renters/sellers expect an option fee to close the deal. This amount can be as low as one percent or as high as 10 percent of the home’s selling price. The fee lets the seller know you plan to purchase the home at the end of your contract.
You can also consider using a rent to own service (Ownerwiz is one example), that will assist you throughout the process and help mediate between the buyer/renter and the seller.
You also need to consider the monthly rent for the home or apartment. The payments for renting to own a home may be a bit higher than regular renting. The extra rent – which is called rent credit – goes toward the home’s down payment. The rent credit can be up to 50 percent of your monthly payment. When your contract draws near, the credit can help cover the down payment you need to make your purchase.
The Benefits of Renting to Own
There are numerous benefits of renting to own your home. You have the chance to buy a home without the initial worries of qualifying for a mortgage loan, purchasing homeowner’s insurance and paying property taxes. You also have the opportunity to fix and increase your credit scores. This allows you to qualify for a home loan at the end of your contract in order to complete the transaction.
Another benefit of renting with the option to buy is saving. You can lower the amount of your future mortgage loan by saving money toward the home’s purchase. Do this by reducing your spending habits and obtaining a savings account.
Potential Problems
If you decide to not purchase the home or cannot secure a mortgage loan, you will lose the money you put into the home. This can also be a problem if the home needs numerous repairs or faces other potential issues that would cost you more to fix in the long run.