I come across quite a few people that want to find a rent-to-own home. Rent-to-own homes may be an ideal choice to anyone with not so great credit, financial problems and may not be able to qualify for a home loan. It may sound like a easy thing to do and a dream come true, but you need to do your research. Like they say, all that glitters isn't gold. In a perfect situation all parties can enjoy the benefits. The tenant can begin paying towards their own home and the owner can have their mortgage payments taken care of.
Even though this process to home ownership may seem a little easier, it is still a big financial commitment. You still need to do all the research you can. Don't get too excited and jump into that type of agreement until you fully understand everything.
Most sellers prefer to get all of their money up front in one big payment and be done with it. Sellers generally don't want to be landlords and have to deal with the responsibility of being a landlord. Sellers are more likely willing to do a lease option in a market with too many houses for sale and they are having a hard time selling. In that case, it can benefits the seller because they will be able to lock in a price for their home even if the market drops.
Renters need to consider what will happen if a problem arises and they can't move because they have made a commitment to buy the home. The lease for a rent- to-own property is a lot more complicated. There is more fine print than in a regular rental agreement.
The Responsibilities of the Tenant
I have noticed that buyers only see the benefits and not any of their responsibilities during this process. The lease option can cost between 1% and 5% of the the agreed purchase price. The rent will be a little higher than the regular market rate. Most of the time some or all of the option fee will go towards your down payment. The seller will remain the owner, but will require the tenant to handle all of the maintenance responsibilities. You are still expected to pay down your bills and rebuild your credit before the lease option expires. Many people don't know that when you are in a rent-to-own lease you still have to qualify for a loan eventually. If the lease option is for a year, you have a year to get your credit and anything else in order during that time. If the lease option is for 2 years, then you have 2 years to do so. Either way YOU WILL EVENTUALLY HAVE TO BE APPROVE FOR A MORTGAGE. Keep in mind that you will have to take care of your responsibilities and maintenance while paying higher rent.
If for some reason the market drops, you may end up paying more than what the house is actually worth. If your lifestyle changes, it may be harder to get out of that commitment if you want to move into something better. Also, you have to consider the fact that you may not qualify for the loan. And most importantly there is no guarantee the house will not go into foreclosure while you are making payments. You don't want to loose all of the money you have invested in the house thinking it will be yours.
If you are going to take the rent-to-own route make sure you know what you are signing up for. You want to avoid ALL misunderstandings. Make sure the contract includes the home price, how much the rent will be, the date the lease option expires, how much of the rent will go towards the home purchase, make sure there is no language that will allow the landlord to evict you for anything minor, and what are the circumstanced in which the contract can be voided. I highly recommend having a real estate attorney look over the lease option contract to make sure you are protected.
In my opinion, I think it is better to go the traditional route in buying a home. Rent until you save your money and work on getting your credit as high as you possibly can. If you can raise it to a 620 a few lenders will work with you. But like I have said in my previous blog entry, the higher the credit score the lower the interest rate. It is best to just wait and go the traditional route because either way it goes you will have to be approved for a loan. Why not get everything in order with lower rent and less responsibilities? If you are already having a hard time trying to save for a house and getting your credit in order, it will be harder to do with higher rent and more responsibilities. Even though it might seem like a easy way out, it isn't for everyone. In a nutshell, if you think the rent-to-own route is the way you want to go PLEASE make sure you do your homework!