The rent to own option has taken over quite a few arenas, such as furniture, computers, and you guessed it, homes! Rent to own homes appeal to record amounts of first time home owners as an eye-catching option for owning a home. Many Americans have poor credit or are in debt and afraid to even approach banks to attempt to receive a mortgage at the time. Examining the pros and cons to lease to own options will help decide if this is a beneficial program for you first time home purchase.
The way many rent to own or lease option rental homes work is that the tenant signs a lease with the landlord (who is the owner of the home). The lease has most of the standard rental agreements and it also includes a rent to own option for the tenant at the end of or during the leasing period. During the renting term the tenant pays a rental price that is usually inflated higher than the rent market value for the house. A portion of the money that the renter pays each month goes to the seller as income, and a smaller portion goes towards the down payment on the home.
At the end of the leasing period the buyer must decide if they want to purchase the home from the seller or if they would just like to move on. If the renter chooses to purchase the property, the renter must then apply for a mortgage and the money that was set aside by the previous home owner monthly will be used as the down payment. So technically, the renter will not have to come out of pocket and will start off with financing. This option is not a bad option if you really want a particular house and need time to get your credit or requirements in order before receiving approval for a mortgage.
One thing that first time home buyers need to be careful of is the wording of the lease. Some lease to own options are written to state the renter must purchase the home at the end of the leasing period. You want to steer clear of lease to own contracts written in this manner, because if you decide not to make the purchase to if your financing falls through you could incur some heavy penalties. Get a lawyer to comb over the rent to own agreement with a fine tooth comb before signing any paperwork.
Lease to own homes are not bad or good, they are on a similar plane to purchasing a home if you can get a good deal with a reputable person or company. Not many people get to try out their house or neighborhood before purchasing, so this definitely has major upsides. Good luck and stay a step ahead.
Tags: beneficial program, first time home, first time home buyers, first time home owners, lease to own contracts, owning a home, rental agreements, tenant signs, time home buyers, time home owners