If you are a renter, you may want to consider the option to rent to own a house. With this option, you may be able to buy the home you have been renting at the end of the lease, rather than just renewing yet another lease. If you can’t or don’t want to buy the term at the end of the lease, you can move out, letting the homeowner decide what to do with the home next.
While rent to own does have many benefits, there are also a few downsides you may want to consider before making your decision.
The Pros of Rent to Own
First, we’ll look at the benefits of rent to own, as there are several.
- You have time to work on your credit – Let’s say you are renting your dream home and would love to call it your own. You know that you have bad credit right now, though and would be ineligible for a mortgage. If you rent the home with the option to buy, you can work on your credit while you live in the home. You don’t have to worry about someone else coming in and buying the home from beneath you.
- You aren’t committed to the home – With a rent to own proposition, you have the chance to buy the home, but you aren’t under any obligation. If you rent it for a while and decide you don’t like the home, the neighborhood, or any other factor, you don’t have to buy it. This is a great way to ‘try a home out’ before actually investing in it.
- You can put money towards the home purchase – As a part of your rent to own agreement, the landlord may save a portion of each payment and put it towards your down payment. This can make it easier when it comes time to buy the home. You won’t have to come up with as much cash for the down payment.
- You may lock in the purchase price – Some landlords lock in a purchase price for you on the specified date. If you decide to buy, you pay that price rather than the market price. If the home’s value falls, you can cancel the purchase. If it rises, you have the protection of the lower agreed upon price.
The Cons of Rent to Own
Of course, there are always two sides to every story. In this case, there’s a bad side to the rent to own method.
- You stand to lose money – Because you likely pay inflated rent prices, you are essentially saving money with the landlord (seller) for the down payment. If you don’t buy the home upon lease expiration, you forfeit all of the extra money you paid towards the home’s down payment.
- You are still at the landlord’s mercy – You aren’t in control of paying the taxes or the mortgage. If the landlord (seller) stops paying either, the bank or county could take possession of the home. You would stand to lose money and the home that you intended to buy.
- You can’t make many changes to the home. Just as you are at the landlord’s mercy to pay the bills on time, you also have to ask his permission to make any changes to the home. The landlord is still in charge of any major repairs that need to be done. You may not like his decisions, but until you own the home, you don’t have a say.
- The home’s value may decrease – You have no way to predict how the market will react during the time that you rent to own. If the value drops when your lease expires and it’s time to buy or walk away, you may end up walking away rather than paying more for a home than it’s worth. This means the landlord gets to keep the ‘extra’ money you paid each month that should have gone towards your down payment.
As you can see, there are good and bad sides of rent to own agreements. When done right and when the market cooperates, you stand to benefit from the deal. But if things go wrong, you end up with a finicky landlord, or values drop, you may lose money in the deal. Make sure you read the fine print carefully and make sure you understand the agreement as well as how the landlord operates before making a decision.