How You Can Rent to Own
Deciding to own a home is a big decision, especially considering the housing market in America today. Many individuals and families might be skeptical, because they are unsure whether or not a mortgage will be worth their hard-earned income – especially if they think they may regret the decision later on. When you rent to own, you can pay a monthly rent on a home while you work towards owning the home in an affordable way.
Why would I want to rent to own instead of buying outright?
Renting to own can give you more options. Normally, individuals and families must either deal with paying rent on an apartment, going from rental home to rental home, or taking a big risk (and a big financial drain) by settling on a house. But with a rent to own contract, the buyer gets piece of mind in knowing that they like the house before buying, and the seller gets a more likely chance to sell.
Rent to Own Eligibility
Broadly, you can be eligible for a rent to own home if you can prove that you are a reliable renter. This can be done in a number of ways – but perhaps the most common way is by having a decent credit score. This shows that you have a history of paying bills on time, repaying debts responsibly, etc. By steadily renting a home, you can eventually raise your score and buy the home later.
How to Rent to Own a Home
If you are a home owner who is looking to sell your home, it can be a difficult process. Finding a buyer for the asking price that you would like is becoming harder and harder – and therefore, renting your home to a potential buyer can be a great way to not only expand your market, but also to make some supplemental income as a landlord. But if you are looking to potentially buy a house, then you are in luck! There are a number of different types of homes on the market that you can choose from – however, if you are looking to not jump straight into a mortgage, checking out rent to own homes expands your list even further.
Once a home seller and a potential buyer find each other in the housing market, they can get together to discuss the terms of a contract that is drafted by the seller. The buyer is encouraged to bring along a real estate attorney to this meeting, as there are likely to be a lot of clauses and industry-specific terminology in this contract, and they can help buyers to ensure that they understand what is expected of them. They can also look out for scam artists, who may be trying to trick potential buyers into hidden pitfalls and secretly terrible deals.
At the meeting, the contract should discuss the asking price of the property as a whole, as well as the monthly rent that will be expected of the buyer for a pre-determined number of months. However, these figures should always be negotiable before the contract is signed – it is usually in the buyer’s best interest to make a counter offer for the final price, and to try to set up monthly payments that fit well with their monthly income level.
There is often a clause in these contracts discussing the potential for maintenance that needs to be done on the property, and which party is responsible for paying those fees. The seller will also often have a clause in the contract that dictates what kind of inconvenience fine there may be if the buyer does not choose to purchase the home after the renting phase has concluded. After both parties have reached an agreement and covered the entirety of the contract, it can be signed – this also legally prevents the seller from continuing to look for potential buyers during the duration of the contract (even ones that are willing to purchase the home outright).
The buyer begins their rent to own experience by paying an “option premium” to the seller – this is a percentage of the overall asking price of the house. This is usually about 5 percent, but it can also be adjusted based on the ability of the buyer to pay. By paying this premium, the buyer is legally gaining the right to potentially purchase the home at the end of the contract. While this payment is non-refundable, it can be subtracted from the final payment for the house if the buyer decides to do so at the end of the contract.
After the buyer has moved into their rent to own house, they can begin to pay their monthly rent to the seller. In the same way that the option premium is a layer of protection for the seller, there is also a small, non-refundable added figure that the buyer must pay alongside their monthly rent. However, if the buyer chooses to purchase the home at the end of their contract, these additional payments will also be subtracted from the final cost. This not only gives the seller some extra guaranteed money in case the buyer chooses not to purchase the home, but it also gives the buyer a much lower sum that they must produce at the end of the contract if they do want to go through with the purchase.
Advantages of Buying & Selling with Rent to Own
Renting to own can be extremely beneficial for all parties involved, if the terms of the contract are followed through to the final purchase. For sellers, renting to own can allow you to set a higher selling price for the home than you might otherwise, due to the extra hassle of not immediately selling & the inherent risk of potentially not selling at all. For buyers, renting to own can give you much more flexibility than you might get otherwise. By living in the home for a while, you can learn whether or not the home is a right fit for you and your family. There can also be financial benefits with renting to own – if the housing market has an upswing while you are renting (thus increasing the value of your rental home), the seller cannot change the original asking price that was listed in the contract. This could allow you to get a much better deal than you may have ever anticipated. While renting to own has certain definitive pros and cons, it can be an excellent way to slowly and responsibly purchase a home for your family’s future.