Lots of people wonder if it is a good idea to rent to own. It certainly can be in some circumstances. Not everyone is ready to buy a home. You have to have good enough credit to get a mortgage and have an adequate down payment. If you have bad credit but are working towards getting it repaired, it could work out well,In most cases, you have to come up with a down payment unless you are a veteran and can procure a Veteran’s mortgage or are buying in a rural area and get USDA financing. When purchasing a home for the first time, it is essential to brush up on the financing programs available for first-time homebuyers. These are financial hurdles that may take time for you to overcome. But if you know you want to be a homeowner or at least like to have the option in the future, you could find a rent to own deal and start down the path towards your goal.
Vital Takeaways of Renting to Own a Property
A rent-to-own transaction is a contract that you commit to renting a house for a specified period of time, with the option of purchasing it before the lease comes to its conclusion. Rent-to-own agreements usually include a standard lease agreement and the option to buy the house in the future. Lease-option contracts allow you the right to buy the home when the lease expires, whereas lease-purchase contracts make you purchase the property. You’ll be paying rent throughout the lease, and in most situations, a percentage of the rent payment is applied towards the sale price. With a percentage of rent-to-own contracts, the renter may have to pay for any repairs and maintain the property.
1. What Credit Score Should You Have When Renting to Own?
You will want to shoot for the highest credit score you can get. The better the credit score you have, the better mortgage terms you’ll receive when it comes time to buy. The minimum score you will want to have is 620, as it will be far more challenging to get a loan when it is lower.
2. Can I Rent-To-Own a Home With Bad Credit?
Yes and no. You might be able to find a landlord who will rent-to-own a property with bad credit, but you’ll need to improve your score in order to get a mortgage with a traditional lender. Remember that many homeowners won’t rent to you with bad credit, so don’t bank on it.
3. Could a landlord break a rent-to-own contract?
Yes, and this is very important to keep in mind. The agreement will state that as a tenant, you need to pay your rent each month. If you breach the contract, the landlord could have a right to terminate and evict you.
4. Is Renting-to-Own Cheaper Than Renting?
The difference between a traditional rental and how renting to own works is the money going toward the down payment with rent-to-own agreements. You are essentially building some equity with a rent-to-own arrangement.
5. Is Rent-to-Own Better Than Buying?
The better question would be is renting better than rent-to-own. In most circumstances, no. People who make rent-to-own contracts do so because they are not able to purchase a house.
6. Is it Better to Own or Rent?
This question has been debated over and over again for many years. There is no right or wrong answer as much of it depends on timing. Are home prices going up or down? Are interest rates high or low? Can you rent and invest the savings in rental costs vs. a home purchase and come out ahead? These are all questions that need to be answered in order to determine the better option at the time.
7. Will a Bank Do Rent-to-Own?
No. Banks that foreclose on an owner have one goal in mind – get the home sold quickly. Banks have no interest in being landlords. Banks want their REO properties liquidated for as much money as possible in the shortest period of time.
8. Can I Renovate a Rent-to-Own House?
Yes – If the rent-to-own agreement has a lease option clause and language in it states you can make renovations and other improvements. You would not be able to renovate a home without a lease option agreement.
9. How Long Are Rent-to-Own Contracts?
More often than not, they are one to three years in length.
10. Can an Owner Back Out of a Rent-to-Own Contract?
No. Once both parties have ratified the contract, neither party can back out without legal ramifications. If an owner tried to back out of a lease-purchase-agreement, they would not have the authority to sell the property.
11. Can a Realtor Help Me Find a Own Option Rental?
Yes, although many real estate agents do not get involved with rental property and strictly deal with home sales. Some real estate agents might not be motivated to deal with this kind of transaction as they would not get paid a commission for a much longer period of time.
Final Thoughts on Renting to Own
Rent to own transactions are not common, but they can work in some instances when two parties have unique circumstances. Just be sure you go into an own option arrangement with eyes wide open. Understand the advantages and disadvantages before making a long-term financial commitment.
Hopefully, you now understand how rent to own works and make an informed decision based on all of the pros and cons of a landlord or renter.