Today you’ll learn about the rent to own homes’ pros and cons. We’ll be talking about how the rent-to-own process works, the pros and cons of rent to own homes, how typical lease to own agreement works.
Things to do before signing the contract and things to be aware of especially when it comes to repairs plus so much more.
Why do people choose to find rent to own homes
So let’s go ahead and get the process started with why do people choose to find rent to own homes.
I rent a home or rent to own home in principle at least sounds like a great idea. Especially for consumers that don’t qualify for a mortgage right now.
Now the trade-off on that is you’re still going to have to qualify for a mortgage at some point and generally that some point is to the 5 years after you’ve entered into a rent-to-own agreement.
How does this Work
So we’ll go ahead and start talking about this a little bit more about how does this work.
So again rent to own contracts generally lasts between two to five years and there will be upfront option fees that you’re required to pay prior to being able to move into that property.
A portion of the think of it like the mortgage or the rent, in this case, let’s say it’s $2,000. A portion that will be applied to the purchase for your down payment on that property over time.
But let’s say that the upfront purchase option is going to set you back $15,000.
This is where rent to owns get pretty interesting there’s gonna be these upfront fees with a purchase option before you even enter the agreement to purchase this property on a rent-to-own basis.
If you had $15,000 just laying around for the option. Then you probably could qualify for a mortgage depending on what your credit score’s looking at.
Pros Rent to Own Homes
So let’s go ahead and talk about the pros of the rent to own homes.
So some of the pros of that type of rent to own home actually include you’ll be able to move it to the home right away.
(Okay I mean there’s no escrow and all that other stuff it just booms once the agreement signed everybody’s happy you move in.)
You have time to improve your credit score to qualify for a home loan. If that’s something that you need to do.
A portion of your monthly rent goes towards the purchase price at the home which is helpful and you can qualify with poor credit.
Because the person that owns the property is going to be the one that’s going to judge whether your creditworthy or not.
You can get the home for the current market value ideally.
Cons Rent to Own Homes
So the cons are that there’s a large upfront option fee. Going back to that $15,000 option fee. If you got 15,000 they’re pretty expensive that’s up front and it’s non-refundable.
You could be forced to leave the property if the owner gets foreclosed on or goes through a short sale process.
If you terminate the contract at any time you lose your option fee. So again going back to like that $15,000 amount.
If you got foreclosed if the owner got foreclosed on if they went through a short sale and lost it.
Or if you terminated the contract for any reason you lose that option fee and the option fee could be as high as $15,000.
It can be less than that or it can be more than that depending on what the rent-to-own owner is actually looking for and you still may not qualify for a mortgage at the end agreement.
The interest rates will be higher more than likely because of interest rates on the rise. Depending on what interest rates are doing they can be higher or lower but right now they seem to be on the rise.
So it’s really important to understand that going upfront with those pros and cons.
How does a Typical Lease-to-own Agreement work
So how does a typical lease-to-own agreement work? Well, let’s say that you find a rental home or apartment and that property let’s just use the number of $200,000.
Your monthly rent payment is gonna be about the same as what you were paying let’s say sixteen hundred dollars a month. Where two hundred fifty dollars of that going towards the purchase price every single month.
So that means that you’re going you’re getting three thousand dollars over the period of three to five years a year going toward your purchase price. So that’s the idea there’s.
Also an option fee on this property that says of nine thousand dollars required to be paid for upfront.
The owner financing may be a good idea if you like the credit to get approved for a mortgage at the same time there are many mortgage programs from down payment assistance. The home as possible FHA loans, VA loans, USDA loans 1% and 3% down conventional loans.
That you might be able to qualify for a mortgage now that would actually be in your best interest for so many different reasons.
But today’s article about giving you the scoop on the pros and cons to help you make the best decision possible on rent to own homes.
So things that you should do before you sign a contract on a Rin home before you sign any kind of solar financing or rent-to-own agreement. These are the things that you want to consider to beware of any property that is in need of repairs.
Get a Home Inspection before signing any agreement.
The third thing you want to do is ask for a copy of a certified home appraisal. You want to make sure that whatever you’re agreeing to is the purchase price of that property.
That it’s in keeping with what the actual appraised value of that property is. Keep in mind that whenever you do qualify for the mortgage to go ahead and buy that rent to own property.
You cannot get more loans than that appraised value of a property. So it’s pretty important to know that.
Trusted Real Estate Adviser
In this case, as a trusted real estate adviser I’m going to highly recommend that you have a real estate attorney review that contract and explain the options to you to make sure that you’ve crystal clear on what you’re agreeing to.
Negotiate a lower option fee and rent payment if you can. The main reason here that you want to go negotiate the lower option fee.
Because again if that property gets foreclosed on if there’s a short sale issue and or get the bank to accept your offer on that property. Or you can’t qualify a mortgage. You lose the option fee altogether it’s non-refundable.
That’s pretty scary because $9,000, $15,000, $20,000 whatever the case may be is a huge amount of money. Especially when we’re talking about trying to be able to buy a home.
So the next thing that you want to be aware of is to be very leery of any home that is in need of repairs. Mainly because you want to make sure the owner fixes them.
If the owners are not willing to fix the property and make the necessary repairs then you should probably just walk away and do one of two things. Either wait it out until you can get approved for a mortgage or find yourself another rent to own a property.
Beware of Scams
So beware of scams because you know sometimes this does, unfortunately, it does happen. Where people will say they own a property and maybe they do or maybe they don’t but they’ll try the rent to own it to somebody because they want that option fee.
That option fee is non-refundable and then they can pull out and go somewhere else.