A Rent-to-Own program, also known as a Lease Purchase program, is a great way to buy a home through non traditional channels. Why would you buy a home under a Rent-to-Own homes program? For starters, if you’re unable to purchase by traditional means because your credit is not in the best shape, then a lease purchase may be your next option. The current real estate market offers some great deals and now is the time to negotiate a lease purchase that will benefit you. But you don’t want to go into a lease purchase blind. It’s good to know the positives and negatives of buying a home through a lease purchase or rent to own program. Here is five positives and negatives about a rent-to-own plan:
You’ll only have to move once. Unlike living in an apartment and searching for a home, a rent-to-own purchase does not involve giving notice and coordinating a purchase closing with a rental move-out. You get to buy and stay in the home with a rent-to-own.
Learn everything about the home before you buy. There are things you will never know about a house until you live in it. Not even an inspection can tell you how much noise you will hear from an adjacent room, whether the garage door will wake you up at night because your master bedroom is directly over it. If you’re a 1st time home buyer, you just don’t know about these small details. How noisy is the HVAC unit going to be? Is the closet really as large as you thought. When you live in the home you’ll experience all the negatives and positives of the home;
Build up down payment equity. With rent-to-own, you can negotiate that part of the rent will be credited or applied to the purchase price or down payment, which will allow you to have some equity when you’re ready to close.
Valuable time to repair your credit. If good credit is blocking you from buying a home a rent-to-own program can give you time to Clean Up Your Credit Report so that you can purchase; You can pay off charged off items, dispute erroneous credit issues, and get your score and credit where you need it to be to purchase.
There are no refunds. Most lease to own agreements are structured in such a way that If you don’t buy, you lose your equity, your rent-to-own deposit, etc. That extra you pay on your rent each month that will go towards your down payment you stand to lose. So be prepared. Maybe you’ll want to sign a rent-to-own agreement on your lease renewal. At that point, you’ll be sure you want to purchase the home.
Make sure the owner is current on the mortgage. Seems obvious, but there are a lot of homeowners that are renting because they can’t sell their home, or may not be able to afford the mortgage payments any more. Make sure your Landlord is current on their mortgage payments. It is hard, but not impossible to get back any deposit funds if you are paying the rent and the owner defaults and forecloses on their loan. Include a provision in the lease that the owner must show proof of a current mortgage each month. Have a 3rd party like a real estate brokerage or attorney hold the deposit until the deed is done.