What Are Rent-To-Own Homes And How Do They Work?
Most people are not familiar with the rent-to-own homes. The term is mostly confused with usual renting of a house. But rent-to-own is a different concept. It is also called lease-to-own a home. According to real estate agents, in rent-to-own homes, there is an agreement between a seller and a tenant in which they agree that the tenant will buy the house after some time on a price that is agreed upon today. The agreement can be done between a buyer and a seller or it can be brokered by a realtor. Hiring a realtor is good just to be safe from the fraud. He can do the necessary paperwork for the party that he represents.
How Do real estate agent Work?
The buyer can pay the down payment to the seller through a real estate agent. If the buyer is a tenant in the house, he can increase his monthly rent which will slowly add to his down payment. For example, if a tenant is paying $500 a month, he can increase the amount to $700 a month and each month the additional $200 will be added to the down payment.
With the agreement between the two parties, the potential buyer moves into the house right away. But the process is not as simple as it may seem. There are many things to be followed legally. The buyer has to pay a one-time Option money to the seller. The option money is usually non-refundable. It gives the right to a buyer to purchase the property, although he is not obligated to buy the house. He can change his mind about purchasing the property. But it depends if this is written in the agreement. The agreement can make it an obligation to purchase the house. If he decides not to purchase the house, he has to let go of all the rent paid during the term of the agreement/lease.
The responsibility for maintenance is on the potential buyer. He has to pay for all the repairs and reconstructions. The seller can choose to cover these costs however, it is the buyer’s responsibility because it is his house after all.
Pros and Cons of Rent-To-Own Homes
- The idea of rent-to-own homes is only suitable for those who are ready to own a property. You always have to arrange for a realtor to mediate between the parties. That calls for an additional fee.
- If a buyer does not purchase the house at the end of the agreement, he does not have the right to get the additional money that he paid during the agreement period.
- In most cases, the buyer is not able to purchase the property because of lack of money. In that case, he has to forfeit all the additional money paid during the lease time. So that is a negative point!
- But a pro is that you can take loans from banks. These loans can help you buy the property.
- A low credit score is a problem in buying a house. Rent-to-own eases that problem because you can start the deal with bad credit score but eventually build up your scope while the house is reserved for you. Banks can help after the credit score is fine enough.
- Another plus point is that the price of housing is only increasing. You can agree with buying a house at the current market rate after a period defined in the agreement. After that period, even if the price is increased in the market, you still have to pay the agreed amount.
- There is a risk for the buyer. If the price of the property is decreased because of some reasons, he will still have to pay the agreed amount.
Property-related tasks must always be done by realtor. Yes, you need to pay their fee, but it will ensure that you do not fall a victim to con and fraud. Rent-to-own homes should also be purchased with their help. Moreover, they’ll give you an expert opinion on whether you should go for them or not. You have to carefully examine all the benefits and risks of a rent-to-own house so that your money does not go to waste.