What is rent to own and how does it work
Rent to own is unquestionably the most affordable way to get what you want, but it’s not for everyone. Renting a house or apartment to purchase later is not an uncommon contract in real estate transactions. In fact, it’s a type of contract that can be found in many places, both in the US and around the world. If you’re planning to purchase a house or apartment in one year or more, then you may want to consider this option. But before you do anything else, make sure that the rent-to-own is a legal agreement between you and your landlord.
You must understand that rent to own is not as straightforward as it sounds. There are more legal obligations and conditions from both sides than you may realize. For instance, the landlord must continue to allow your family to live in the house at all times. Also, if you’ve made an offer on a property and it’s accepted, you could be obligated to purchase the home at the agreed upon price.
However, there are ways for tenants to make their rent decrease over time, so that they can eventually purchase the property. Some of these ways include making early payments, paying rent on time, and increasing the amount of rent with each payment. In fact, some rent to own arrangements may even decrease the total cost of the home if you handle your payments in a timely manner.
The benefits of rent to own
While you may have to make a long term commitment in a rent to own deal, you can take advantage of some great benefits. Let’s take a look at the major ones: Reduced Tax Liability – Purchasing a home through rent to own is a way to reduce your tax burden. You may be able to offset some of the mortgage interest on a home purchase by paying off the rent during the same time period. You may also be able to reduce the mortgage interest that you have to pay on the home you’re renting.
Reduced interest – If you’re paying a mortgage on your home, chances are you are also paying a large amount of interest on the amount. Since rent to own doesn’t involve any interest costs for the renter, there’s no way for that money to go into the renter’s pocket.
Capital Gain – Many people choose to purchase a home through this method because they want to use the money they’ve made on their investment to help pay for their mortgage. You can do this with rent to own, but it will be treated as a sale, in which the home is no longer considered part of your estate.
Luxury – As you may already have figured out from some of the benefits above, rent to own also offers a higher level of comfort than a traditional mortgage. This could be a huge factor to consider when it comes to deciding whether or not you’ll want to rent or buy one of these homes.
How to find the right rent to own property
The biggest challenge that you’ll face is finding the right property. This is where your research comes in. Find as much information as you can regarding possible houses or apartments to rent-to-own. You can search on real estate websites or even websites that specialize in rent to own properties. Here are a few things you should look for: The seller wants a cash offer – If the seller is looking for cash, then you will know that it’s very likely that the property is worth what you’re willing to pay. You may be able to negotiate a lower purchase price, as well.
The seller is a real estate agent – If he or she is an agent for the seller, which means that the buyer and seller are both representing different parties, then you’ll want to find out how much commission the agent is getting.
The age of the property – Find out if there are any lead-based paint issues, or if it requires earthquake retrofitting. These things can add substantially to a property’s cost.
The neighborhood – Find out if there is any crime in the area. Just as with any real estate purchase, you’ll want to know what kind of people live nearby, and if there have been any problems.
You can even use your friends as a source for information. They may have heard about properties that are worth renting-to-own, as well as ones that aren’t. It doesn’t hurt to ask them for their opinion.
The process of renting to own a home
The first step in the process is to decide whether you want to buy the property. If you do, then go ahead and write a check for the down payment and closing costs. Next, you must tell the owner that you want him/her to sell to you at a later date. The third step is your opportunity to inspect the property. If you find that there are major issues, it’s time to negotiate for a lower price. The fourth step is paying rent on a regular basis in anticipation of purchase. You must have written documentation (contract) as well as an escrow account. The final step is actually completing the sale. Make sure that you thoroughly review the contract, including any addendums before signing. Finally, the home is yours. It’s now time to enjoy your new home that you have worked hard to obtain!
Benefits of Rent-to-Own
There are numerous benefits to rent-to-own, including:
Getting a jump start on purchasing a home in an area where you plan to live.
Building a credit history.
Having time to repair your credit.
Learning about the steps involved in buying a home, so you will be better prepared for the future.
Preparing for the financial commitment of home ownership. For example, if you are planning on buying a $200,000 house, you are also going to have to come up with a $20,000 down payment at some point. This is something to consider when considering an option like rent-to-own.
The process of renting to own a home gives you the opportunity to:
FAQs about rent to own homes
Can I get a rent to own home with bad credit? In most cases, you can. You should have a reasonable down payment and show the seller that you can be responsible. If you have what it takes, then there’s no reason why this won’t work out for you. What is rent to own and how does it work? This is where you rent a home and make payments in the form of rent. At the end of an agreed period, you have the option to purchase the home. This can be advantageous when you’re trying to build up your credit or if you can’t afford to make a large down payment at once. What are some pluses and minuses of rent to own? Rent to own can be a great option when you might not have enough money for a down payment or if you have bad credit. It allows you to build up your credit and save up for a large down payment. The main con is that you could potentially lose the home due to an unexpected emergency or job loss. What are some key questions to ask before buying a rent to own house? Here are some things to consider:
Are the rent payments the same each month? If they change, then it could be a sign that your payments will increase when you purchase the home.