For many Americans, owning a home is a dream that we work towards achieving.
Unfortunately, the most significant challenge aspiring homeowners struggle with has to do with their financials. You need to have a substantial amount of money or have access to a good mortgage to afford a home in the current market.
But real state selling strategies such as rent-to-own have opened up possibilities for people to own a home where they would previously not have been able to.
What is Renting to Own?
Rent-to-own is an agreement between a tenant and a landlord that allows one to rent a house with the possibility of buying the house at the end of their lease. This agreement is beneficial to tenants and landlords as it gives some sort of assurance on both ends.
However, as a tenant about to commit to a rent-to-own agreement, there are factors that you need to have in mind. We’ve listed some of them below to help you make a well-informed decision.
1. Different Kinds of Lease Agreements
Rent to own is defined by two types of leases: lease option agreement and lease-purchase agreement.
The lease option agreement involves paying the landlord an option fee at the beginning of your agreement. This fee is an average of 4% of the property value. Your rent will also serve as a down payment for the purchase and, at the end of your lease, you are allowed to walk out of the agreement, but your fee is non-refundable.
A lease-purchase agreement works with the same principles as the lease option agreement. The one difference is that you are obligated to buy the house at the end of your lease.
When you sign the contract at the beginning, you settle on a price with the landlord. If you cannot make your purchase at the end of your lease, your landlord keeps your option fee and can sue you for breach of contract.
2. Property Market Price
If you are going to take out a loan to buy a house, ensure the house is worth the amount you are borrowing. Once you settle for a home and choose to enter a rent-to-own agreement, hire an independent property inspector to do an appraisal on the property and determine its actual value. The insight they provide will prove valuable as you sit down with your landlord to handle the negotiations.
3. Scrutinize Contract Clauses
It is important to go through every contract in great detail. Read the fine print and understand what obligations you have towards the home as a tenant. Find out who will cover the costs for repairs during your tenancy and confirm if there are penalties for late rent payment.
If anything proves too technical, consult a lawyer. Some clauses can be quite tricky to understand and can cause you to lose the right to purchase the property.
The Bottom Line
Getting the title deed to your home through a rent-to-own agreement can prove to be overwhelming. But if handled correctly, it could be a great investment for the future. Just remember to do diligent research before you get into any type of agreement with any realtor.
