Everyone assumes when we buy houses, we have to go through the traditional method of applying for a mortgage and buying the home outright. However, in certain situations, rent to own is becoming more popular. Rent to own is when you agree with the landlord or tenant that you will give them a certain amount of money each month until you have enough to purchase the home. It is not a very common solution to selling a home. But there are plenty of people out there that do it. We will discuss the pros and cons of renting to own for homeowners and tenants.
Pros of renting as opposed to selling
Sometimes people have to move for unexpected reasons. Most people rent out their homes because they don’t have the time to sell them. Most people don’t have the best credit score. That is why a rent-to-own option can be beneficial for some people. If you are renting from a landlord who is planning on selling. But you do not have the proper credit to apply for a mortgage yet. It can be very beneficial for you to do a rent-to-own option if you are happy with the home you live in. the benefit is you can live in the house for a while and realize if you like the area enough to buy a home. If you’re a homeowner that is using rent to own. The good part is when the person moves in, they will give you a large down payment that is non-refundable for the purchase of the property. It is typically one percent to 5% of the purchase price. So if you’re an owner, it is excellent because you are getting money each month towards purchasing the property. Usually, it ranges between 1 and 3 years during this period where they will keep paying you monthly rent on top of the lump sum that they gave you.
If you are a tenant, the good thing is that a portion of your monthly rent is going towards purchasing the property. And a lease option agreement, the renter has a certain amount of time to buy the home and an agreed-upon price. Since the rents are already put up a good amount for the down payment, they generally choose to go ahead with the purchase. Because they do not want to lose the amount of money they already put down on the home. If they back out, the seller gets to keep all the money. Which holds the tenant more into buying the house.
Cons of renting to sell
Of course, there are issues regarding rent-to-own options. Some of those problems consist of even with a rent-to-own opportunity, you are still a landlord who holds you responsible for situations in the home. So you still have to manage the property and take care of any type of damages or anything else that go along with renting out a home. So you have not entirely sold the property, yet you are still responsible. The renter might also still treat the home poorly even though they are eventually purchasing it; this can be an issue if you don’t live in the area and they are damaging the house. Because then you have to focus on major repairs or anything else while you are out of state.
The renter may also struggle with paying rent which is exceptionally terrible if you depend on this rent to pay a mortgage on another home. If you decide to end their tenancy, you may have to undergo an eviction process. Another bad thing is that renters don’t always purchase the home; even after the down deposit, some people can’t get approval from a bank due to either bad credit or just not enough buying power to purchase the home. Leaving you stuck still renting to a person who cannot buy your home.
Another disadvantage is sometimes you may lose that down payment or other non-refundable charges if they decide not to purchase the property. Some sellers may even take advantage of the rent-to-own option making it unappealing to buy the home to keep the down payment. It is also a disadvantage if you own a home in a hot real estate market. Because you agree to a sales price years before actually selling the home. Over time, your property value went up, and now you are stuck selling at a lower cost while still owning the home. Finally, sometimes some causes affect the exclusive right to purchase the house; for example, some contracts that have the right to purchase may be given up if you fail to pay rent.
If you decide to rent to own
If you don’t decide to sell your home, the rent to own option and there are many things you need to be careful of. You may want to get an agreement of sale put together by a real estate attorney. To make sure that all clauses and everything are straightforward. That way, you can avoid any confusion down the road. Nobody will want to have to go to court to handle any matters involving a rent-to-own option. Be smart with the amount of money you sell your home for and the amount of rent you are getting. Plenty of homeowners Short change their self overtime on the amount.
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