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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.

Why Rent to Own?

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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.