Most people would love to live in a particular house or neighborhood but their stumbling block many be that they have bad credit or have no money to pay a down payment. Rent to own homes remove these two stumbling blocks if you are one of those people.
When you are looking for a non-traditional way of owning a house rent to own can be a great way to step into home ownership, but it does not come without its own disadvantages which you might want to be aware of. In this article we are going to take a look at the benefits and problems that may arise from a rent to own agreement with your landlord.
What Is Rent To Own Homes?
Rent to own homes are houses with leases which may have an option to buy at the end of the lease or that you may be required to purchase the house after a certain period.
The money that you pay as your monthly rent may include your rent or some money that contributes to a future down payment of your house.
Rent to own homes listings are not as common as the rentals or sales this is because most of the rent to own homes may become listed because of 2 main reasons :
- If a home seller is selling a property and it has been on the market for a very long time and has not had any buyers the property owner may opt for a rent to own agreement
- Some landlords may want to sell the house you are leaving in but you as the tenant like the house you can ask the seller for a rent to buy option.
How The Process Works?
If you are looking to do rent to own you should know how the process of rent to own works. There are certain rent to own agreements that you are going to sign, which are all rent to own but may mean different things.
- Lease-option contracts, this kind of agreement gives you the right to buy the house when your lease expires, this does not mean that you have to buy the house if you change your mind about the house
- lease-purchase contracts, This agreement requires you to buy the house when your lease expires
You should know that if you back out of a rent to own agreement the money that you were paying towards down payment in other cases may not be refunded by the seller.
There are also some nonrefundable upfront fees that you may incur. This onetime fee is known as the option fee, option money or option consideration which you as the buyer are supposed to pay the seller. It is what gives you the right to buy the house at some later date in the future mainly after 3 or so years.
This fee is often negotiable since there is no standard rate for it. The option fee ranges between 1% to even 5% of the purchase price.
One thing that you have to keep in mind about rent to own is that you have to get pre-approved for mortgage before you tire yourself into such an agreement.
Rent To Own Homes, Who Pays Property Tax?
Property tax in simple terms is the tax that will be collected by the local government which will be used to fund projects that will benefit the community such as development and maintenance of the roads, schools, police and the emergency services in that area. This tax is part of being a home-owner everyone pays it.
When it comes to renting to own a house you must always keep in mind that the house that you are paying rent to own for is not your house yet so your landlord or the seller in this case is the one who has to pay the property tax until such a period when you have now bought the house.
When you buy the house using a mortgage you can have an option to pay the property tax as part of your monthly mortgage repayments or directly to your local government offices.
Maintaining the property may be the landlord’s responsibility but you may end up being the one who maintains and pays for the repairs if you do not read the fine print in your contract, I advise you to always have a lawyer look at it,if you would like to avoid problems in the future.
You will need a renters’ insurance to cover losses to personal property, This will also provide liability coverage if someone is injured while in the house or if you accidentally injure someone in the home.
Maintaining the property, for example mowing the lawn, raking the leaves, and cleaning out the gutters, and so on is very different from replacing a damaged roof or bringing the electric up to code.
Whether you’ll be responsible for everything or just for mowing the lawn, you should have the home inspected, appraised, and make sure the property taxes are up to date before signing anything.
What Are The Pros And Cons Of Rent To Own?
Renting to own a home can be a great path to home ownership to you the buyer and also an advantage for the seller who has had a property on the market for a long period.
The Advantages of rent to own
- If you have bad credit and are working on your credit, rent to own can be a great way to move into a house you love and still have a chance to work on your credit, knowing in the back of your mind that you can still buy this house in the future.
- If you sign a lease option contract you do not have to buy the house even when your lease expires.
- You can have a feel of leaving in the area that you love giving you the time to make up your mind whether this is the place you would love to live in or not.
- If the prices in the area that you got a rent to own house in increases you still have to pay the price that you valued the house at for example if you locked the value of the house at $200,000 and for some reason property prices in the area increase to $300,000 you still get to purchase the property at $200,000.
The disadvantages of rent to own
- If you choose to sign a lease purchase option, this will mean you have an obligation to buy that house even when you no longer want to purchase it at the end of the lease.
- If the market value of the house decreases you still have to buy the house at the value you locked in.
- You may lose the money that you were paying on top of your rent as down payment if you choose to cancel the rent to own agreement, since this money is non-refundable.
Where To Find Rent to Own Homes?
There are so many places that you can find rent to own home listings online, I will just list just a few reliable ones which can get the pressure of hunting for such listings out of your hands. Finding rent to own listings may be very hard and might be time-consuming, I will always advise you to let the professionals do the heavy lifting for you .
Rent to own listingz
The site offers the ability to search properties by zip, is updated daily, and includes full property details.