How to Rent to Own a Property
Do you want to buy a house but lack the credit score and cash for a down payment? Try securing a rent to own agreement. It is a good alternative to the traditional route to homeownership.
Here, you rent a home for a certain amount of time with the option to buy it before the lease expires. It is indeed a very good deal. However, these properties are not very common. You are lucky to find one, and when you do, it is best to have a good understanding of the terms so that you can secure the property quickly. Take note of the tips below and get your finger on how rent to own agreements work.
Rent to own, in brief
In this transaction, the owner agrees to sell the property to you for a pre-determined price within a certain time frame. A portion of your rent payments will also go toward the purchase price or buyer’s closing costs associated with the transaction. After signing the contract, you are bound to rent the property for a specified duration and eventually buying it before your lease ends.
Two types of rent to own agreements exist: lease agreement with option to purchase and lease agreement with purchase agreement.
In the first option, you agree to pay an option fee for the right to purchase a property at a later date. It is usually 2-7% of the purchase price. The owner is required to sell it to you and the option fee is deducted to the total cost. However, if you change your mind about buying, you forfeit the money.
Meanwhile, in the second option, both parties agree on a fixed purchase price or agree on a future appraisal price. It is often the better rent to own option as everything is set from the beginning.
How your rent payments build equity
Some people say renting only flushes money down the drain, and they are right. But the good news is this does not apply when you rent to own. All your payments create rent credit. A percentage of your monthly rent goes to the purchase price of the home, lowering the total cost each month.
Is rent to own for you?
As mentioned, you may benefit from a rent to own agreement if you do not have any cash for down payment or are unable to secure financing. It is a big help because you can still fulfill your dreams of being a homeowner in your own way. Start looking for rent to own properties near you and speak with the owners. Check all your options and select a property that best fits your needs.