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Revealing the Pros and Cons of Rent to Own Homes

If you’re hoping to enter the housing market and buy your first home, you may be interested in learning about rent to own homes as an option. If you don’t have a large down payment saved or your credit isn’t the greatest, rent to own homes may be just the option for you.

As with anything, there are pros and cons of rent to own homes. When you rent to own, you’re able to lock in a purchase price, make rent payments, and start to build equity toward a down payment on the house you’re living in.

While this is a great opportunity, if you fail to make your payments or if an unforeseen event causes you to move, there are some risks you should consider.

Is rent to own a good idea for you?

This guide will go over the pros and cons of rent to own houses to help you decide if this is your best path to homeownership.

What Is Rent to Own?

In real estate, typically a buyer and a seller complete a home purchase after the closing on a home. The buyers purchase the home from the seller and the home changes ownership immediately.

Under a rent to own agreement, the buyer and seller actually only agree on the possibility of the renters purchasing the home in the future. You can learn more about companies who specialize in these homes by continuing to read on here.

The renter, who ideally will buy the home, ultimately decides if they are going to purchase the home or not.

In the meantime, the buyer will make payments to the seller in the form of rent. A portion of this money will typically go towards the purchase of the home in the future.

Let’s say your rent is $2,000. You might see an agreement where $1,000 will go to rent and $1,000 will go towards a down payment. That gives you $12,000 towards the purchase of the home at the end of a year.

The Pros and Cons of Rent to Own Homes

When looking at the benefits and drawbacks of a rent to own home there are several factors to consider. In many cases, the benefits to a potential home buyer far out weight the bad.

You’ll want to consider your current financial situation, your earning potential, your long-term plans, and also the real estate market where you live before jumping into a rent to own contract.

The Benefits

Here’s a round-up of some of the main benefits of entering into a rent to own agreement.

Great for People Who Need Help Qualifying for a Mortgage

If you are having trouble saving enough money for a down payment, you’re not alone. It can be hard to save for a down payment when you are also paying for an expensive rental.

This is where rent to own options can really be beneficial. You’ll be renting the home you will potentially be living in while you’re also saving for your down payment.

If your credit is less than perfect, this can also buy you time to build up your credit. While you’re renting, you can pay down your credit card, cut some expenses, and reduce your debt.

Hopefully, by the time your lease term is up, your credit has improved enough to qualify for a mortgage.

You Can Lock in Your Purchase Price

If you live in a hot real estate market where the value of homes is constantly increasing, you might be able to lock in your purchase price while you rent your home for a couple of years.

As the price of the home increases, you’ll still only pay the price you agreed upon years before.

Allows You to Test Drive the House

Sometimes, you’re just hesitant to commit to buying a house. In this case, you’re actually renting the home you want to live in which allows you to test-drive it. Test driving a home means you can feel out the area, the neighbors, and the house itself.

By renting the house before you buy it, you can see if any issues come up with the home you didn’t know about.

The Drawbacks

With any real estate transaction, there are always some potential drawbacks to consider. Here are some of the cons of buying a rent to own home.

You Risk Forfeiting Money

In our $ 2,000-a-month rent example, $1,000 of that rent is going towards the purchase of the home you’re renting. If you decide you don’t want to rent the home, after all, you run the risk of losing that money.

Typically, with a rent to own home, the seller will put in the agreement that if the potential buyer backs out and decides they don’t want to buy the home, they will forfeit that money.

Keep in mind, however, that you likely would have paid that money in rent anyway so it isn’t necessarily money lost.

You Aren’t Fully in Control

With a rent to own agreement, there are sometimes forces that you can’t control. You may have intended to buy the home you’re renting but sometimes life happens. You may need to move for a job or you get married or divorced.

The same situation can apply to the seller, and they may end up needing to sell the home sooner or foreclose. While this is rare, there is always a possibility.

Late Payments Are Costly

If you’re unable to pay your rent on time, you may end up losing the house or losing some of the money you have built up towards a down payment.

Pay your rent on time, and this shouldn’t be a problem at all.

Is Renting to Own a Home a Good Idea

Deciding whether or not to rent, rent to own, or purchase a home traditionally is a tough choice. Consider your financial situation and weigh the pros and cons.

On one hand, you get the benefit of test-driving a home, saving money towards a down payment, and locking in a purchase price. On the other hand, life happens and sometimes you may end up leaving the home before you intended and unable to purchase it.

Whatever your situation, when it comes to the pros and cons of rent to own homes, the benefits tend to outweigh the bad.

For real estate news, tips, and ideas, visit the blog section for more great housing market resources.


Read more: How Does Rent-to-Own Work