Rent-to-Own: What you need to know
A rent-to-own agreement is a contract in which you agree to rent a property for a set amount of time with the option of purchasing it before the lease expires. Rent to Own allows buyers to rent a property at a reduced rate for up to five years. You can then purchase the property at the end of the leasing tenure. The idea is that the money you save on rent during your lease can be used to put down a deposit for when you eventually buy the property.
How Does Rent-to-Own Work?
In their contract, the buyer and seller agree on a purchase price for the home. The buyer can buy the house for that amount at some point in the future, regardless of its worth.
To account for predicted gains in home values, it's typical to set a rent-to-own home price that's greater than the going rate. Things work out to the buyer's advantage if the home's value has increased faster than planned. The renter has the option to leave if the house loses value.
The Rent to Own Process
- Inception. A potential homebuyer begins the process by selecting a unit and agreeing to the contract as produced by the property owner/developer; this is also the stage at which a potential homebuyer pays a deposit equal to a proportion of the purchase price, as well as agreement administration expenses.
- Installments every month. Following the payment of the agreed-upon deposit, the purchase price balance is divided into equal monthly installments to be paid within the rent-to-own agreement's maximum length. The month-to-month payments are usually subject to a rate of interest.
- Interest. The interest rate on the remaining amount of the purchase price is limited to 9% and is charged on a declining balance. As a result, the balance mentioned above of the purchase price, which is arranged into equal monthly rental payments, includes the 9% interest.
- Completion. Following receipt of the final payment of the purchase price, ownership of the property will be transferred to the Tenant Buyer.
What Are the Advantages of Rent to Own Agreements?
Renting to own allows a person to start creating equity in a property without having to take out a mortgage or put down a big down payment. This is particularly advantageous for people who lack the financial resources to make a down payment due to a lack of savings or who are unable to obtain a mortgage due to poor credit scores.
What Should You Take into Account When Renting to Own?
Rent-to-own agreements can vary greatly and necessitate the renter's due research. It's critical to research the contract maybe with the help of a real estate attorney, the home with an appraisal and inspection, and the seller.
If you're considering a rent-to-own arrangement, read the contract carefully and seek legal counsel. Is the rent reasonable? Are there any other questions you should address before pursuing a rent-to-buy scheme? Will I be able to purchase the house after the time frame? Is the property priced correctly in the market?
Chris Price Realty offers extensive knowledge of various ways and strategies for maximizing rental prices and property ownership. Our real estate knowledge includes everything you need to know about the rent-to-own program and more.