Why Rent to Own When You’re Not Ready to Buy

Rent To Own

Some home sellers will make their properties available on a rent-to-own basis. The buyer and seller will agree to a rental term and rate. In turn, the property owner agrees to put aside some portion of payments for a down payment in order to help the tenant qualify to purchase the property after the term is over. Ideally, this type of arrangement can work out well for both parties.

These arrangements can offer advantages to both buyers and sellers:

  • They give a buyer time to improve their credit in order to qualify for a good mortgage.
  • They can also give the prospective buyers a change to gather a down payment.
  • A rent-to-own deal can help a seller make an income off of a property that might have been tough to sell quickly for a good price.

Advantages of Rent-to-Own Deals for Prospective Buyers and Sellers

In theory, the renter should be in a better position to qualify for a mortgage by the end of the rental term. Making timely rental payments will help. They can use the down payment that the owner set aside to help them buy a house that they already have equity in. This should help them qualify for a better mortgage rate, lower monthly loan payments, and give them the financial security of already having some equity in their home. It also gives the renter time to be sure that buying a particular home in a particular neighborhood is really something that their family wants to commit to.

The deal can be great for property owners too. It gives the owner a chance to make an income off of a property that might have been tough to sell. Typically, they also get charge a bit more for rent and deposits because they are helping the buyer gather a down payment and qualify for a home mortgage. This kind of deal might make some rental properties more attractive to tenants than they would be otherwise.

Rent to Own Doesn’t Always Work Out

It’s a good idea for both renters and landlords to be careful when setting the terms of these agreements. Renters may not always qualify for a mortgage after the set term, or they might simply decide that they’d rather not buy the house. It’s important for both parties to agree to a resolution of this kind of situation before any contracts get signed. Typically, landlords won’t refund the extra payments unless the tenant actually sits down at a closing table to buy the home.

Some landlords might extend the term to help out a good tenant, but some might simply evict the tenants and keep all of the payments that they made if they don’t end up buying the home. In fact, there have been cases of landlords who rented out these houses with higher rates, never expecting the tenants to qualify for a mortgage. They would get to keep deposits and extra payments and simply move on to the next tenant.

Of course, renters may have another advantage because they can lock in a sales price in advance. Their hope is that the home’s value will improve over time or at least, it won’t decrease. If the value does decline, the owner might not be eager to renegotiate the price. If the home’s value does increase considerably, property owners might get locked into a bad deal.

Find Rent-to-Own Deals in Your Hometown

Despite some potential pitfalls, renting to own can work out well for both hopeful buyers and property owners. If you’d like to find quality rent-to-own properties in your own city or town, contact FinancialHelpers.com.

Last modified: January 4, 2018

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