With a rent-to-own agreement, you sign a lease that dictates you’ll rent a home for a given period of time and have the option to purchase before the lease is up. It’s a little more complicated than a regular rental – and you’ll want to take specific steps to ensure the deal makes sense before signing – but it may turn out to be a great choice.
Here’s how to know if a rent-to-own home makes sense for you.
Know what you’re signing
Make sure what you’re considering is a lease with an option to buy, not a lease-purchase agreement. The latter requires that you purchase the home at the end, the former gives you the choice.
Know you can afford it
In a rent-to-own agreement, you have to hand over a small down payment – on average 3 to 5 percent of the agreed-upon purchase price. The good news is this will contribute toward your down payment should you opt to buy. The bad news is if you opt out, it’s non-refundable – so be sure it’s money you’re willing to risk.
You’ll also be paying above-average rent for the property. Why? That extra money will funnel into an escrow account that will also go towards your down payment.
It can be a great deal – if you can cover that monthly nut. But if you’re late with a payment, you’ll likely lose that extra money for good – and could even risk termination of the agreement, which means you won’t get any of your money back.
Know what you’re buying
You wouldn’t buy a home without an inspection, and rent-to-own homes are no exception. Find out if there are any problems with the property and address them before signing.
You also need to know if the property is in foreclosure, so you don’t lose your money when the bank claims the home. Consult with experts in real estate sales and law to get the answers you need.
Know the area, know the market
Rent-to-own homes can be a phenomenal deal in an area that’s on the rise. You can lock in a purchase price and may end up landing a desirable property at a really great rate.
Of course, this works in reverse, too, so be sure you either really love the home and location or have a good sense of where the market is headed, because you could end up paying more than it’s worth.
Customize your agreement
Rent-to-own contracts can be tailored to suit the needs of both buyer and seller. Go over details such as who is responsible for home owners’ association fees or general house maintenance, things that a landlord would cover in a more traditional rental arrangement.
Feel confident in your decision
Rent-to-own agreements have loads of advantages, allowing buyers time to build or restore their credit before applying for a loan all while saving money for the down payment.
Additionally, you’ll have time to take the house for a test drive before making a final decision – better to know about traffic patterns, cell reception and noisy neighbors ahead of time! You’ll also save money on the cost of a move if you decide to buy at the end of the lease.