If you want to own a home, but you can’t afford a down payment or qualify for a mortgage right now, you might want to consider renting a house with the option to buy. Before you agree to anything, make sure you understand the terms and weigh the pros and cons.
How Does a Rent-to-Own Agreement Work?
In broad terms, a rent-to-own arrangement allows a tenant to rent a property and potentially buy the house in the future. The specifics vary from one contract to another.
For example, a portion of the money you pay in rent might be applied to a future down payment. When the lease ends, you might be able to either purchase the house or walk away, or you might be required to buy it. The agreement might or might not lock in a price for a future purchase. While you’re renting the house, you might be responsible for some or all of the maintenance costs.
What are the Advantages of Renting With the Option to Buy?
A rent-to-own contract might be a good idea if you want to buy a house in the not-too-distant future, but you’re struggling to save enough for a down payment. Having some of your rent money applied to a future purchase can help you build equity. Renting with the option to buy can also give you time to improve your credit before you apply for a home loan.
If you rent a house and then buy it later, you’ll be able to avoid some of the common expenses associated with becoming a homeowner. For instance, you won’t have to hire a moving company or buy new furniture.
An agreement that doesn’t require you to buy the property can give you a chance to try out a home and get to know the neighborhood before you commit. If you realize that the house doesn’t suit your family’s needs, your commute is too long, or the area lacks amenities that are important to you, you’ll be able to look for a more suitable home when the lease expires.
What are the Drawbacks of a Rent-to-Own Agreement?
You’ll have to pay an upfront fee. If some of your rent money goes toward a down payment, the amount you pay each month might be significantly higher than the average rent for similar properties in the area. If you’re required to pay for maintenance, that can substantially increase your overall housing costs.
If you don’t buy the house, you can lose the fee, the extra rent money you paid, and any funds you spent on maintenance and repairs. If you’re required to purchase the house when the lease expires, but you can’t qualify for a mortgage, you can find yourself in legal trouble.
Make an Informed Decision
Renting with the option to buy is ideal for some people, but not others. Before you sign anything, review the terms of the contract carefully, think about your circumstances and goals, and get legal advice, if necessary.
