You may be renting a home right now and thinking that you would like to own your own home someday. Many people choose homeownership for the permanency and security it provides for themselves and their loved ones. Homeownership offers the owner a number of personal and financial benefits like having pride in owning a home and income tax breaks. Besides, homeownership is often times a sound investment. For whatever reason, some people continue to rent despite the advantages of owning a home. Maybe they don’t have enough money for a down payment, or maybe they don’t qualify for a mortgage at the moment. Maybe they don’t understand homeownership and the idea intimidates them, or maybe they just haven’t decided to make the commitment. Well, did you know that you can rent to own a home? If any of the “maybe’s” above sound like you, then a rent-to-own home may be a good choice for you.
When a homeowner lists their property as a rent-to-own property and accepts an offer from a prospective tenant, they enter an agreement. In this agreement, the homeowner, who is now the landlord, and the tenant agree on leasing terms which include and are not limited to the duration of the lease and monthly payments. At this time, the homeowner takes the property off the market and the tenant pays an option consideration as compensation. The tenant has the option to purchase the property anytime during the lease or at the end of the lease depending on the agreement. The homeowner may also include the purchase price or pricing conditions in the agreement.
While you’re renting to own your property, you have time to build your credit score so that you may qualify for a mortgage loan. Per the agreement, a portion of the rent paid may be allocated to the purchase price of the home. Unlike renting without the option to purchase, your rent money can become investment money. Nevertheless, you could lose your investment if you cannot secure a mortgage loan or neglect to fulfill the terms of the agreement.
In the real estate industry, this rent-to-own option is referred to as a lease purchase and sometimes a lease option. There are subtle differences between the two, so be sure that you fully understand the type of property you’re considering and the terms of the agreement. Remember that this is your investment, so feel free to negotiate!