About 65.8% of homes in the US are occupied by owners, while the rest are renters.
Buying and renting both have their advantages, but for many people, homeownership is the main goal. For some, buying a home isn't viable. Rent-to-own homes, however, might be the best solution for you on your journey to becoming a homeowner.
Keep reading for a rundown of everything you need to know about rent-to-own homes.
What Are Rent-to-Own Homes?
A rent-to-own house is one that's under a special agreement. This method allows you to buy a home after renting it for a specified number of years. You can do this by paying slightly higher rent than usual, and this extra will make up your down payment when your lease ends.
Unless you have a large sum of cash ready, making a downpayment for a home you want may not be possible. A rent-to-own home is far more viable for some people.
Note that you might have to pay an "option fee" of 2-7% of the home's value to ensure you don't lose the option to buy a home. You also need to bear in mind that you'll lose your extra payments if you don't buy the property at the end of the lease.
Pros of Rent-to-Own Homes
The main benefit of a rent-to-own home is that you can become a homeowner without needing to save up for a down payment. While renting a home, you can also get used to it and make sure that you like it.
With most rent-to-own contracts, the responsibilities are split between the tenant and landlord. This means you likely won't need to pay for large repairs.
Once your lease comes to an end, you have the option to buy the property or to move on. You'll be able to get a standard home loan, and the money you've already paid for the original home will go to the new lender.
Cons of Rent-to-Own Homes
The main drawback comes if you choose not to buy the home at the end of your lease. All the rent money you've paid will be forfeited. So too, will the option fee (if your contract requires it).
You might also not be able to complete the purchase if you can't qualify for a home loan. If this happens, the homeowner can then sell it or put it up for rent again. You should make sure that you'll be able to qualify for a loan by the time your lease ends.
Types of Rent-to-Own Contracts
There are two main types of rent-to-own agreements.
The first is a lease-option agreement which includes an option fee. An appraisal is done to determine the value of the property, and the option fee usually reduces the price of the property. If you choose not to buy, you can walk away from the option and let it expire, but you'll lose the rent credits and option fee.
A lease-purchase agreement is similar, but you're obliged to purchase the property at the end of the lease. You'll agree on a price when signing the lease, or on a specified date that you state in the contract. You should start shopping around for a loan before the lease runs out to make sure you're ready.
Is a Rent-to-Own Home Right for You?
Rent-to-own homes are a great option if you're intent on owning a home but can't currently afford a down payment. Bear in mind, however, that it's not the only option.
PMI of the Triad is a real estate management company that can help you find the perfect home. We can discuss your situation with you and determine the best solutions. Take a look at our Buyers page to see more about we can help you find your dream home.