Are you looking to purchase your own home, but are not sure where to start? GoBankingRates has devised this simple and effective guide on everything you need to know about rent-to-own homes. We will show you how to find rent to own homes, the process of signing onto a rent-to-own home, the rent to own homes’ pros and cons, and the difference between this option and a conventional mortgage loan.
Rent-to-Own Homes Pros and Cons
If you are thinking about diving in to a rent to own home, it is wise to first understand some rent to own homes pros and cons before making such a big financial investment. According to the website Zillow.com, there are many benefits with a rent to own home and signing a rent to own contract.
The perfect opportunity for people with no or poor credit. If you are looking for a starter home and don’t have any credit or you have fallen on hard financial times and have missed paying some bills that has negatively impacted your credit, a rent to own home can permit you to develop equity and let your credit heal.
You are in control of your home buying destiny. With a rent-to-own contract you have the option to build equity in your potential future home or you can choose to walk away from a home if you don’t want to purchase it.
You are preparing yourself for home ownership. Going with a rent to own home prepares you to take the next step and become a homeowner. You are able to understand what it really means to become a homeowner without actually “owning” a home.
However, there are some serious drawbacks to rent with option to buy:
If you only decide to rent only, you forfeit all of your payments. If you decide not to go ahead and purchase the home you are renting, then you forfeit all of the money you paid in rental payments and for the premium option fee.
You may fall victim to a poor contract or one of many rent to own scams. If you do not have a professional representing you (a broker and/or lawyer) carefully read it, your rent-to-own contract may not permit late rent payments to apply towards your eventual purchase.
Make sure you understand exactly how your contract treats you so your agreement treats you well. Some contracts enable the seller to end the agreement or one or more clauses of it. Some portions of the agreement that are able to be ended include maintenance, payment due dates or if the seller is able to sell the property quickly and for more than your agreement.
Conventional Mortgages Versus Rent-to-Own Homes
While traditional mortgage payments are guaranteed to go towards the ultimate ownership of the house, payments with rent to own home arrangements are not always guaranteed to go towards ownership and in some cases are lost forever.
How to Find Rent-to-Own Homes
If you want to learn how to find rent to own homes, the San Francisco Chronicle suggests a few places you can start looking to find homes like these:
1. Craigslist. Along with homes for sale, there will be a good number of rent-to-own homes for sale throughout each geographic listing.
2. Search engines and specialized websites. By simply using the keyword phrase “how to find rent to own homes” in search engines, you can find local or national rent-to-own websites with listings. The San Francisco Chronicle’s recommendations of national sites with listings of homes for rent with option to buy includes Lease2Buy.com, USLeaseOption.com, and iRenttoOwn.com. These websites also include the lease-to own-homes option, in addition to renting.
3. Local real estate publications or newspapers. Check local publications as well, in which you are more likely to find rent-to-own homes in and around your neighborhood.
Signing the Rent-to-Own Contract
The process of signing on for a rent-to-own home is similar to purchasing a home with a consumer-based mortgage loan. Instead of a home being put up for sale, however, it is put up on a rent-t0-own basis.
Most rent-to-own contracts are for terms of one to three years, and include an upfront deposit to guarantee the purchase price, should the renter and owner agree to a sale at the end of the contract.
The upfront fee and the monthly rental payments during the contract are able to be combined to be put towards a home down payment on the contractually-specified purchase price. During the term of the contract, renters can work on their credit and improve their financial situation so they can obtain a mortgage loan to purchase the house.
However, if financing cannot be secured by the renters during the rental phase, the deposit and rent payments will be forfeited to the seller.