Rent-to-own home buying is an increasingly popular option. It can be a great way to work toward owning a home. However, it has some financial pros and cons. These are important to be aware of before you make such a big decision.
What is Rent-to-Own Home Buying?
As the name suggests, rent-to-own home buying is a method of purchasing a home. In this method, you rent (or lease) your apartment or home for a period of time. During that time, a portion of your rent goes towards a down payment on purchasing that same home. At the end of a designated period of time, you have the option to buy the home. If you do, that money will go towards the home purchase.
Benefits of Rent-to-Own Home Buying
Rent-to-own home buying is a terrific option for some people. It is specifically designed to help people who aren’t financially prepared to purchase a home. They may have no down payment. They may be unable to qualify for a mortgage. The rent-to-own option can be a way around those issues for people who wish to work towards purchasing their own home.
Rent-to-Own if You Aren’t Ready to Own
Financial reasons aren’t the only ones that make people hesitate to purchase a home. Another big reason is that you want to move in with someone but you aren’t sure you’re ready to commit to owning a home with them. For example, let’s say that you’re in a relatively new relationship. You’re ready to move in, but not necessarily to buy a home together. Rent-to-own home buying gives you the opportunity to invest in a home together. However, you don’t have to commit to the purchase until a few years down the line. By then, you will have more of a sense of whether or not you want to live together for many years to come.
Similarly, you may find yourself unsure about whether or not you want to stay in a new city. A rent-to-own home buying option gives you the chance to try it out for a while. You’re putting roots down if you decide to stay. That way, you didn’t just waste a bunch of rent money while deciding. However, you aren’t jumping right into purchasing a home in a city you may leave soon.
Other Benefits of Rent-to-Own Home Buying
Additional benefits include:
- Sometimes you can lock in a sale price, which is helpful in markets with rising real estate costs
- You get time to improve your credit, allowing you to get a better loan when you’re ready to buy
Drawbacks of Rent-to-Own Home Buying
Rent-to-own home buying offers a lot of flexibility. However, there are important drawbacks to consider, most of which are financial.
First of all, there is typically an initial fee called an option. It literally gives you the option to buy the house at a future date. This is a negotiable fee. It may be refundable, but it usually isn’t. It may be applied to the eventual sale price of the home, but it also may not. Be sure to read the contract carefully with regard to the option fee if you do decide to rent-to-own a home.
Another important consideration is that your rent may be higher with rent-to-own than with traditional renting. The extra money usually (but not always) goes towards the purchase of the home. However, if you decide not to buy the home, you’ve lost that extra monthly money.
Additionally, you might be financially responsible for repairs to the home. Likewise, you may be required to pay property taxes while renting-to-own. It is important to look closely at your contract. Consider the terms carefully to see if it makes financial sense.
Should You Rent-to-Own a Home?
If you currently have the money for a down payment, then it might make more sense to purchase a home. Likewise, if you are able to qualify for a mortgage, then doing so is a good choice. However, if you find yourself in a position without those options, then you might want to rent-to-own. In other words, rent-to-own is often a better financial option than regular renting. However, it’s not as financially sensible as purchasing a home outright.
What are your thoughts on the pros and cons of a rent-to-own home buying situation? Share in the comments.
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