Are you eager to buy a home in your neighborhood but don’t think that you can qualify for a home loan? Do you lack the money for a down payment? If so, you may have heard about the practice of renting to own a home. Now, let’s take a look at rent to own homes and should you do it?
What is a Rent to Own Home?
It is a contract between a homeowner and a renter that allows the renter to pay an additional amount, above the basic rent, that will be used as the down payment to purchase the house at a later date. Typically, the homeowner agrees to sell the home on a specific future date for a higher price than the house would currently sell for on the market.
Example: Jane falls in love with a lovely cottage in her desired neighborhood and is eager to buy it. However, she hasn’t saved any money for a down payment and is worried that her bad credit won’t allow her to get a home loan. The owner of the cottage offers to let Jane rent to own the property. Jane agrees to pay a monthly base rental of $1,500 plus an added $500 to go towards a down payment. The rent to own contract specifies that Jane can purchase the cottage in 36 months for $90,000.
Who Sets the House Price?
The homeowner and the renter often negotiate the purchase price. It’s important to note that the price is usually more than the owner could sell the house for if it was currently on the market. That is because the owner requires some benefit to not selling the home right away.
What’s the Benefit of Rent to Own to the Seller?
Rent to own housing contracts is especially attractive to sellers when the real estate market is slow, and the homeowner worries that their house won’t sell quickly at an appropriate price. So, instead of listing the house for sale, the seller offers the rent to own option to attract a potential buyer who wants to buy the house but isn’t in the financial position to purchase the property at that moment.
Also, in setting the final sales price at a higher rate than its current market value, the owner stands to make more money with the rent to own option than by selling the house right away.
What are the Benefits of Rent to Own to the Renter?
The primary benefit is the ability to live in your future home while you make payments toward a down payment. If all goes well, you get to enjoy living in your new home before buying it. It’s often possible to negotiate with your landlord over such things as painting the walls and owning pets to a more prominent degree than you may be able to in a standard rental agreement.
What Happens if You Lose Your Job and Can’t Pay the Rent?
You might face eviction for not paying the rent. If your landlord evicts you, for any reason, you will most likely lose the extra money that you spent for the down payment each month.
Can You Choose Not to Buy the House?
Yes. If you decide to leave the house, you forfeit the extra money that you paid during the rental time. So, let’s look at the example with Jane again. If Jane falls in love with a sleek downtown condo and opts out of her rent to own agreement on the cottage, she will lose the extra $500 that she paid each month on top of her rental rate.
Is There a Better Option Than Rent to Own?
Many buyers are better off trying to purchase a house outright than renting to own a home. Here a few reasons why buying is better than renting to own.
- Build equity instead of paying rent.
- Access the tax benefits of homeownership.
- Benefit from housing value appreciation.
- Freedom to make home improvements.
- Peace of mind in knowing your future housing costs.
Can You Get a Home Loan?
There are many home loans available for little and no down payments to qualified buyers. For example, VA loans do not require the borrower to put down a deposit to qualify for a home loan. Reputable lenders can find home loans for people with a less than perfect credit rating.
Home for Heroes has a nationwide network of affiliated lending specialists who know how to find excellent loan options to meet the needs of their clients. Along with their financial expertise, Homes for Heroes affiliated loan specialists save Heroes money by offering discounted loan fees. SIGN UP for a no obligation referral to an affiliated loan specialist in your area.
Make sure that you obtain a home loan pre-approval letter from your lender at the beginning of your home search. A pre-approval letter is a formal statement from the lender detailing the amount of money, and with what terms, the lender is willing to provide. Once you receive the pre-approval letter, you’ll know the maximum amount that you can afford to spend on a house.
Can You Find a House?
There is an excellent chance that there are affordable houses in your area. The best way to locate affordable properties is to contact our real estate specialists in your area. Seasoned real estate agents understand the real estate market in their community and are experts in helping their clients find houses.
Many outstanding real estate agents around the country unite with Homes for Heroes. In addition to helping you to locate and buy a home, Homes for Heroes affiliated real estate professionals save you money by giving you a Heroes Reward check for $700 on every $100,000 of the purchase price a few weeks after closing.
Lastly, don’t waste your money on a rent to own property when you can put your money into purchasing a house instead. Homes for Heroes is devoted to helping Heroes own homes. SIGN UP to speak with a Homes for Heroes real estate specialist today.