For most people, buying a home requires them to apply and be approved for a mortgage. However, people who are not able to acquire a home loan immediately may need to use a different approach. Their solution could involve renting to own a new home.
When you contemplate whether moving into one of the rent-to-own homes in your area is the right choice for you, you first need to learn about this unique and somewhat more complex option for acquiring a home. You also should hire and rely on the advice of an experienced Realtor to guide you through the rent-to-own process.
What is Rent to Own?
As its name implies, rent to own is a method that permits people to lease a property for a set amount of time with the option of buying the home after the lease period expires. Rent-to-own properties can include not only single-family homes but also condominiums, manufactured homes, and townhouses.
To expand further on what does rent to own means, the contract for these types of properties typically involves two parts, the lease agreement, and the option or obligation to buy. Before you sign a rent-to-own agreement, it is important to know if you are signing one that gives you the option to buy the house at the end of the lease or if the contract obligates you to buy it. If you are not sure, you are advised to retain an experienced Realtor to read and then explain your lease option contract to you in detail before you sign it.
Additionally, the contract for a house or condo rent to own typically will require you to pay an option fee, which is non-refundable in most cases, to the owner. This fee is one to five percent of the home's asking price and is used to secure your option to buy the home after the lease agreement expires.
To better understand what rent-to-own homes are, you should use the services of a knowledgeable Realtor. Your Realtor can negotiate the contract with the property's owner and ensure that you sign a contract that protects your financial and legal best interests.
Who Rents to Own Homes?
Anyone can opt for a rent-to-own condo, townhouse, single-family home or another residence. However, some clients benefit more from this type of real estate transaction than others.
When you consider how to do rent-to-own homes work, for example, you discover that the lease option to buy homes actually gives the occupant of the property ample time to organize his or her finances and potentially be approved for a mortgage by the end of the lease agreement.
With that, people who typically are interested in a lease option to buy a house are those who generally have low credit scores and need to improve their credit records before they apply for a mortgage. The contract that they sign for lease option real estate can give them several years to clean up their credit and raise their credit scores to be approved for a mortgage when the option arrives for them to buy the house.
However, this type of contract can also appeal to people like self-employed contractors, people with no credit history, foreign nationals, and people who are unbanked. They may lack the financial records that many banks require upfront to apply and be approved for a home mortgage.
What are the Benefits of Rent to Own Homes
If you ask yourself, “What are the benefits of choosing one of the rent-to-own houses near me?”, the answers could persuade you to opt for this type of real estate transaction instead of simply renting a place to live. In fact, there are a number of benefits that draw people to look for rent to homes in which to move.
To start, a rent-to-own option can allow people with bad credit to acquire nice homes in which to live. Their credit records might have prevented them from obtaining traditional home loans that typically require higher credit scores and around 20 percent for a down payment on the house.
Second, it permits people to try out a home and get to know the neighborhood and neighbors before committing to buy it. If you decide to buy the house, you know full well of what you are getting into and how the home and neighborhood function.
Finally, if your lease-to-own contract stipulates that a portion of the rent that you pay to the owner each month during the lease is applied to the principal balance, you could build up equity that lowers the price of the home when it comes time to buy it. You avoid having to apply for and get a higher-priced mortgage and could make lower house payments each month.
What are the Disadvantages of Houses to Rent near Me?
While there are a number of possible benefits that come with lease option homes near me, there are also notable downsides to this type of real estate contract. These drawbacks could dissuade you from using this method to buy a home for you and your family.
One of the biggest disadvantages that come with rent-to-own homes involves forfeiting money that you have already paid to the property owner if you decide not or you are unable to buy the house. You will not get the option fee, which can be as much as five percent of the home's asking price, refunded back to you when your lease comes to an end.
Further, during the time that you live in the home as a renter, you may not have much, if any, control over the house. You cannot remodel or change its appearance, for example. The owner has the final say in what, if any, renovations can take place during the time you live there.
Another point of contention that can arise during rent-to-own tenancies involves who is responsible for the maintenance of the home. If you do not have this issue stipulated in the contract, the responsibility could fall upon your shoulders. You could be stuck paying for expensive repairs for the home, despite technically being a tenant.
If you want to avoid making repairs on the home prior to buying it, you need to clarify that the owner will pay for upkeep and repairs rather than you. An experienced Realtor will make sure that this question is clearly answered in the rent-to-own contract before you sign it.
Another rare, but possible, scenario that you need to keep in mind is what happens if the owner does not make payments on the home's mortgage during the time that you rent it. If the owner defaults on an existing mortgage on the property, you could face being evicted before your lease comes to an end. In that circumstance, you need a knowledgeable Realtor to negotiate with the bank to allow you to remain in the home and possibly exercise your option early to buy the house.
Finally, the home's value can depreciate in value during the time that you rent it. The price that you agreed to pay for it when you signed the rent-to-own contract could be lower than its appraisal value when it comes time to buy it. This disadvantage can be impossible to avoid if you signed a lease purchase rather than a lease option contract.
How to Find Rent to Own Homes
Knowing how to find rent to own homes is not as challenging as it might seem. In fact, you can locate homes to rent to own near me by reaching out to a licensed and well-established Realtor in the area where you want to live. The Realtor generally has inside knowledge of the real estate market, especially on what homes can be obtained with a lease to own option.
Your Realtor can also act on your behalf to reach out to the owner and arrange for a showing of the property. He or she can research the title of the home and make sure that there are no back taxes or other expenses that could be passed on to you if you decide to purchase the house after renting it. This real estate professional can likewise find out about the history of the house and make sure that critical details that you need to know about are clearly stipulated in the contract.
Other options that you have for finding rent to own homes include:
• Real estate websites like Zillow
• Real estate agency websites
• Local newspapers
• Driving around neighborhoods to look for rent to own homes
• Word of mouth from friends or family members
However, your best option for finding a rent-to-own home is to contact an experienced Realtor and ask for assistance in your search.
More about Hiring a Realtor for Rent to Own Properties
A Realtor is a valuable ally to have at your disposal during any real estate transaction. It may seem like a rent-to-own contract is simple to navigate and even the best option for your home-buying dollar. However, these contracts are fraught with legalities about which most people know nothing. Further, you may not realize that you could actually apply for and get a mortgage to buy the house, saving you from having to rent it first.
Your Realtor can determine if you are actually a good candidate for an FHA loan, which is geared toward people with lower credit scores and modest incomes. Your credit could qualify you for this low-interest, little to no down payment home loan, making it possible for you to buy the house without having to pay out money as a renter.
Even if you do not qualify for an FHA loan, you can still rely on a Realtor to negotiate your rent-to-own contract. He or she can haggle with the owner over details like the:
• Option fee
• Purchase price
• Question of maintenance and repairs
• Option versus obligation to buy the house at the end of the lease
Your Realtor can also ask for terms to be included that allow for your continued tenancy if you cannot secure a mortgage at the end of the initial lease agreement.
Rent to own homes can be a solution for people who cannot or choose not to get mortgages with which to buy a home. The contracts for lease option properties are complex and can include details that you may not be aware of or understand. To ensure that the contract works to your advantage and safeguards your legal and financial best interests, you should retain a good Realtor to represent you.