Pros and Cons of Rent To Own Homes

Buying A Home

Pros and Cons of Rent To Own Homes

November 25, 2022

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Everyone is familiar with the traditional method to buy a house. Financing a property through a mortgage is still the most common way to buy a home. However, there are other paths to homeownership that many people overlook or don’t know about.

Leasing to own a house or rent to own homes can be a great option for people who want to buy a house but don’t have the financial resources right away. There are pros and cons of rent to own and understanding them is key to making an informed decision. So, what are the pros and cons of rent to own and how does it work?


What is a Rent To Own Home?

A rent to own home is when a contract allows a tenant to rent the property with the option to eventually buy it before or after the lease expires. Typically, the monthly payment for rent to own homes are increased to include rent and a portion to put towards the purchase of the house.

There are two types of rent to own agreements: lease-option and lease-purchase. In a lease purchase agreement, the tenant is required to purchase the property when the lease ends. If a tenant does not purchase the home, they will lose the money they put towards the property and may become subject to legal action.

In a lease option agreement, the tenant is not required to purchase the property at the end of a lease but they are given the option to. There are no consequences to not purchasing the house at the end of a lease-option agreement. This type of agreement gives the tenant more flexibility and freedom to choose the option that is best for them.


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Pros and Cons of Rent To Own Homes

Jay-Z, Google, and the NAR have heavily invested in rent to own homes because of the opportunity for potential long-term capital gains. However, for home buyers, there are pros and cons that need to be carefully weighed before entering a rent to own agreement. Here are a few pros and cons of rent to own homes.


Benefits of Rent To Own

Rent to own agreements provide many benefits to renters. It is extremely convenient to move into the house you are renting. You don’t need to worry about the hassles of finding a place, packing up, and moving to a new location. Here are the benefits of rent to own homes.


1. Monthly Payments Make The Home Easier To Purchase

In rent to own agreements, your monthly payments goes toward both your rent and covering the down payment for the house. Tenants can negotiate the amount that goes toward the purchase each month and are usually given the option to have none of the monthly payment go toward the purchase.


2. Lock in the Purchase Price

The purchase price for the house is usually agreed upon before signing a rent to own agreement. A tenant and landlord lock in a fixed purchase price for the house that is typically a little more than the current market value. Home values usually rapidly change, so this type of agreement can be beneficial for tenants who are trying to save money.


3. Tenants Can Avoid Moving Again

Moving is an inconvenience that most people do not enjoy. It can create costs and causes stress. Not only do rent to own agreements prevent people from having to move, but they also provide tenants with the chance to get settled in their home before making a purchase.


4. Try Out The Lifestyle and Neighborhood

When buying a house, buyers have to research the lifestyle and neighborhood to make sure it is a good fit for them but they can’t really experience it until they move in. Renting to own allows tenants to try out the lifestyle, build a relationship with the neighbors, and see how the commute to work is.


5. Allows Tenants To Get in a Better Financial Situation

If a tenant has a bad credit score or not a lot saved up for the down payment, rent to own can be a great option while they get their finances in order. The tenant can work on increasing their credit score and their monthly payments will cover the down payment for the house.

Landlords also typically have lower credit score requirements than mortgage lenders, so this can be a great option for tenants who do not qualify for a loan. However, if a tenant still cannot qualify for a loan once the lease ends, they will be in a difficult situation.


Disadvantages of Rent To Own

There are a lot of risks involved in rent to own agreements that should be carefully considered before entering into one. Scamming is prevalent in the rent to own industry and without proper planning it can be easy to lose out on a lot of money. Here are the disadvantages of rent to own homes.


1. Higher Monthly Payment

Since the monthly payments cover both the rent and the down payment, they are usually more expensive than just paying rent. This can create unnecessary strain on a tenant’s finances and if the renter decides not to buy the house, they will have wasted a lot more money than if they had just rented.


2. Late Payments Have Severe Consequences

Most lease agreements allow the landlord to terminate the contract if the tenant is late on payments. This means that if a tenant is late on their rent once, they can be evicted from the house and all of the money put in towards the purchase of the home is gone.


3. May Force You Into Buying a Property You Don’t Want

Lease purchase agreements require tenants to buy the house once the contract has ended. If a tenant decides they do not want to buy the house, they will still be obligated to do so. There are many issues that can arise with the house that a tenant may not have known about beforehand, so they could be stuck in an agreement they don’t want.


4. Scams Are Rampant in Rent To Own Contracts

Scammers can use rent to own contracts to force the renter to buy the property or to take their money without providing them with the house. They may refuse to perform a home inspection or include a clause in the agreement that forces the renter to buy the home without any other options.

Tenants should be aware of these common scams and should always look at the reputation of the landlord before signing a contract, especially if it is a lease purchase agreement.


Great Real Estate Agents Make Buying a House Easy

Homeownership is one thing but the home-buying process is a whole other animal. There are a lot of steps involved when buying a house. From searching diligently for the right house for you to negotiating with the seller’s agent about the terms of the real estate contract, the process can take up a lot of energy and time.

Working with a good real estate agent is essential for home buyers because of their vast experience in real estate and their commitment to take on the headache of the home buying process so that you don’t have to.

However, not all real estate agents are good at what they do. Luckily, we have created a real estate organization that streamlines your search for a high-quality real estate agent otherwise known as a Negotiator.

Negotiators are top real estate agents who have proven themselves top performers in their local real estate markets. Contact a Negotiator if you want to work with a great real estate agent.