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Why Rent when you can OWN?

Is Rent-to-Own a Good option?

Rent-to-Own and Lease-to-Own homes can be great options for people looking to get on the path to homeownership, but may not have a down payment prepared or the ability or willingness to take on a mortgage right now.

Rent-to-Own, lease-to-own, or contract-to-purchase, is a homebuying process that can be beneficial for those with less-than-great credit, people who are unable to make a large down payment, or who desire the option to buy but may not be ready for the commitment of an out right purchase.

While home prices seem to continually surge, people who don't qualify for conforming home loans may be faced with a down payment requirement upwards of 20%. This makes Rent-to-Own a reasonable option. While contracts vary, Rent-to-Own generally allows the potential homebuyer time to build up a down payment, work to improve their credit score, and may lock in the current price of the real estate.

The Basics

Rent-to-Own agreements vary, but the basics are, while leasing a property, the lessee agrees to pay a portion of their rent towards the agreed purchase price of the home. At a certain point, the lessee has the option to buy the home at the agreed upon price.

Rent-to-Own continues to grow in popularity in the U.S. A 2022 Business Wire report notes that consumers find rent-to-own options to be less stressful than traditional purchase options. Some companies offering rent-to-own options provide a potential purchaser the opportunity to shift their purchase money

The Downside of Rent-to-Own

Rent-to-Own is not without risk, and it is extremely important that a potential buyer reviews their particular rent-to-own contract thoroughly in consultation with an attorney.

A potential purchaser will likely have to qualify for a mortgage for the purchase price not covered by monthly payments when the time comes for them to elect their option to buy. That time period varies. Additionally, if the housing market drops considerably, the purchase price agreed on previously may seem unreasonable.

The good news is, there are a number of options for rent-to-own out there and it is becoming more common to account for these drawbacks. Contracts may include options to have down payments returned at the end of the lease agreement if the person declines purchase or is unable to qualify for a mortgage, or the option to apply the down payment balance to a different property in the lessor's possession.

There are also tons of sellers out there prepared to offer properties in rent and lease to own agreements. A savvy buyer might use a rent-to-own contract to lock in a property at the current market price that could see an increase in value in the next few years, when they're better prepared to buy.

Pros and Cons
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Mortgage Signing Contract
Real Estate Agent Giving Keys to Couple

Why Rent to Own?

Rent-to-own agreements can offer more flexibility than traditional home purchases or rental agreements.

Flexible Terms

Rent-to-Own homes come in a variety of styles and sizes, so there's a good chance you'll find a property that meets your needs and preferences.

Wide Range of Properties Available

When you enter into a rent-to-own agreement, a portion of your monthly rent payments may be credited toward the eventual purchase price of the property.

Build Equity

Your new home is waiting

Renting to own can be an excellent option for people who are looking to build equity, have more flexible terms, and eventually own their own home.

Rent-to-own homes can be an excellent option for people who want to own their own home but are unable to qualify for a traditional mortgage or save for a down payment. If you are considering a rent-to-own agreement, here are some of the benefits you can expect:

  1. Build Equity: When you enter into a rent-to-own agreement, a portion of your monthly rent payments may be credited toward the eventual purchase price of the property. This means that you are gradually building equity in the property while you rent it.
  2. Flexible Terms: Rent-to-own agreements can offer more flexibility than traditional home purchases or rental agreements. For example, you may be able to negotiate the purchase price or the terms of the agreement to better fit your financial situation and needs.
  3. Option to Purchase: Rent-to-own agreements typically give you the option to purchase the property at the end of the lease term. This can be beneficial if you are unable to obtain a mortgage or save for a down payment in the short-term, but you still want to eventually own a home.
  4. Time to Evaluate the Property: Renting to own can give you time to live in the property and evaluate whether it is the right fit for you before committing to a purchase. This can be especially helpful if you are unfamiliar with the area or have specific needs or preferences in a home.
  5. Pride of Homeownership: One of the biggest benefits of rent-to-own is the sense of pride and accomplishment that comes with homeownership. You will have the opportunity to make the home your own, decorate it to your liking, and build a sense of community in the neighborhood.

At its core, buying a home is about safety and security. We want a home that we can call ours, can make ours, and feel safe knowing once paid for, it will be ours. When renting to own or leasing to own, it is immensely important that you understand the terms of the contract. Each state has its own laws regarding real estate transactions. The specifics of those laws are best left to the lawyers. The general concept of lease to own is about the same, so we'll talk in general terms. This information is not to be construed as legal advice. You should always reach out to a lawyer before signing any agreement. This is meant to be educational purposes, to give a buyer an idea of what the risks are and what they may want to talk to a lawyer about.

The three biggest issues with rent-to-own, leas-to-own, lease-to-purchase: (and how to overcome them!)

  1. The tenant can't get financing to buy the property at the end of the rental period. This can happen if their financial situation changes, they can't meet the lender's requirements, or if the housing market takes a downturn.
  2. Either the landlord or tenant doesn't follow through on their end of the deal. Maybe the tenant stops making their rental payments on time, or the landlord doesn't keep up with maintenance and repairs like they're supposed to.
  3. There's a disagreement over the purchase price. The rent-to-own agreement sets a price for the property at the end of the rental period, but if the landlord and tenant can't agree on the price, the whole thing can fall apart. The landlord might think the property is worth more than the tenant is willing to pay, or the tenant might think the price is too high given the condition of the property or other factors. If they can't come to an agreement, it could end up in a legal dispute, which nobody wants.

Happy in their new home

Each of these issues can be prevented by ensuring the contract has got the terms right, and that they're fair.

When entering into an agreement, you should make sure you have covered what will happen if any of these things occurs. Will the buyer get back the money they've put into the down payment prior to the collapse of the agreement? There may be valid reasons for the answer to be either yes or no here, but it's very important that it's laid out in the contract. Unfortunately some times things go wrong, being prepared can set you up to succeed.

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