How to Eventually Buy the Home You are Renting
This, in turn, has made it more difficult for potential homeowners to receive approval for mortgages, as they may not have the money in savings, the best credit score or an income level that is high enough to receive approval.
If a family does qualify, they most often become saddled with years of mortgage debt and high-interest rates, as it is very rare to pay for the entire cost upfront.
Renting a home allows you to live in a space that is large enough for your family without the financial responsibility that normally comes with it.
It also gives you the chance to see whether homeownership is in your best interest.
If you decide that you want to purchase the home you are currently in, you may be able to save a certain amount of money each month to use for a future down payment.
Sometimes, a portion of your monthly fee automatically goes toward your down payment.
Renting the home also gives you time to monitor your credit score and improve it so that you are more likely to receive mortgage approval.
Thus, rent-to-own homes may provide a temporary solution to you and your family.
A General Understanding of Rent-to-Own
A rent-to-home agreement takes place when a homeowner rents out his or her homes to tenants in order to make extra money.
Then, the homeowner provides the tenants with the opportunity to buy the home at the end of the lease.
This allows tenants to test the waters of homeownership and provides them with a smooth transition into a mortgage if they decide to buy the house. There are many different types of rent-to-own contracts.
However, most contracts require tenants to rent the house for a specific amount of time before they can make an offer on the home.
Additionally, a portion of the rent may go toward the down payment. The tenants and the current homeowner may negotiate the property price in the contract.
How to Negotiate a Purchase Price for the Home
When formulating a rent-to-own agreement, determining the price of the house is a very important aspect of the negotiation process.
It is also essential for both the homeowner and the tenant to discuss all the details of the contract in advance of the tenant’s move-in-date.
This is especially true if the tenant is obligated to buy the home at the end of the lease.
Understanding the details will protect both parties from harm and may prevent conflicts during and after the rental period.
However, it is often difficult for the tenant and the owner to come to an agreement on the purchasing price of the home.
There are two common ways to set up the contract.
In the first method, both parties wait to discuss the purchase price until after the rental period.
Generally, this option is best for the homeowner, because the price of houses in the area may be likely to increase over time.
As a result, the seller has a better negotiating position.
In the second method, the purchasing price is established at the very beginning of the rental lease.
This often results in a price that is much higher than the current market value of the house.
Tenants may see this option as more attractive because they will be able to create a more accurate financial plan.
They will also be able to determine exactly how much to pay after factoring in all their rental payments.
If the market value of the house goes above the amount that both parties agreed on, the tenant will not have to worry about paying more to cover the difference.
If the value of the home decreases or never reaches the set price, however, the potential buyers will be paying far more than they should.
Learn About the Pros and Cons of a Rent-to-Own Home
While a rent-to-own agreement may be the best solution for some families, it is not always the ideal way to become a homeowner.
As with any agreement, this one comes with advantages and disadvantages.
This agreement may benefit first-time buyers by giving them the chance to eventually own a home and work on increasing their funds and credit scores in the meantime.
It may also give them a solid monetary plan if they know the purchasing price of the house in advance.
If buyers are not certain about whether they want to purchase the home, they may find a rent-to-own contract where a purchase at the end of the lease is not required.
This gives them the opportunity to test out the home and determine its good and bad qualities.
However, it may be difficult to find a contract where you are not required to eventually purchase the house.
Most contracts only have a certain degree of flexibility, meaning you may have a hard time negotiating with the homeowner.
It is therefore essential that you read over the entire contract before signing and understand what your obligations are.
If there are aspects of the contract that you do not understand, you may consider asking an attorney to read it.
In general, you must also pay an option fee. The option fee is nonrefundable and secures your ability to purchase the home in the future.
While you are not locked-in to the purchase of the house, you may not get your option fee back if you decide to leave at the end of the contract.
Learn About the Best Way to Find Rent-to-Own Homes
Rent-to-own homes are not often listed on the housing market, because this kind of a deal is somewhat unusual.
On the other hand, certain websites have separate pages for rent-to-own houses available in the area.
You may also be able to strike up a deal with sellers who may not know about the rent-to-own option.
This option may benefit first-time sellers, especially if they are not getting a lot of offers and their home has been on the market for too long.
If you are currently renting a home but are not in a rent-to-own agreement, you may discuss this option with the homeowner to see if he or she is interested.
You may have better success in this situation if you have a good relationship with the owner and you know he or she is thinking of selling the house.