Rent-to-own homes seem too good to be true, but they can be a great way to get into the homeownership game. Read on for some tips to help you evaluate a rent-to-own property before you buy.
1. Rent-to-own is a fairly new concept in real estate and may not be as regulated as the usual buy and sell transactions. You might want to consider getting some advice from a real estate agent before you sign a rent-to-own contract.
2. Some people hear of rent-to-own opportunities and think it provides people with the best of both worlds. After all, you have to live somewhere — why not have your rent money going toward homeownership? Unfortunately, that is not the way it works.
3. In many cases, the rent you pay for a rent-to-own home is quite a bit higher than you might pay for a normal rental home. Be sure to compare rental prices and rent-to-own deals to get a better idea of how much more you are paying.
4. The proponents of rent-to-own deals emphasize that some of the money paid for rent goes toward a home purchase. What you might not understand, however, is that the money goes toward the down payment. You are not making home mortgage payments with a rent-to-own deal because the home is still in the owner's name. Instead, you are paying rent, and some of the rent goes into an account to later be used for the down payment.
5. It is always possible for some renters to rent a lower-cost home and save the money for the down payment themselves. Rent-to-own deals tend to target those that have a tough time saving money that way, however.
6. Rent-to-own deals involve contracts that can cover one to three years or more. At some point, the contract calls for the renter to become a buyer. Then, the money set aside can be used as a down payment on the home. However, and this is important, the renter must qualify for financing so that the purchase can be complete. Be sure to find out what happens to the money in the escrow account if you are not able to obtain financing for the home.
7. Be sure the price of the home cannot be changed during the contract period. That way, you will know whether or not your down payment will be sufficient or if you need additional savings to cover it and closing costs.
8. This sort of plan works well for those who need a year or so to clean up their credit. In many cases, a year or two can make a great deal of difference in your credit score.
Be sure you speak to a real estate agent before you get involved in this type of contract.