If you talk to experts, such as the financial geniuses of Forbes, they’ll say that there are always creative ways to buy a home. These include everything from securities backed mortgages to family loans. Yet, other experts say that renting to own may be the best way for those who don’t think they can afford a home actually to acquire one.
How does that work? It is actually very simple. As the experts over at Investopedia explained: “a rent-to-own agreement, also called a lease option or a lease-to-own agreement. When buyers sign this kind of contract, they agree to rent the home for a set amount of time before exercising an option to purchase the property when or before the lease expires.”
Now, you might read that and say to yourself, “that isn’t far different from purchasing a home!” In fact, though, it is very different. Firstly, is a great way to allow yourself the time to figure out if the home (and its location) are ideal for you, without already having invested in the property.
In fact, one expert says this of the rent to own concept: “According to the most recent National Multifamily Housing Council survey, renting is still more popular with millennials than other generations, for three reasons: convenience and flexibility; not having enough saved for a down payment; or having recently moved and exploring neighborhoods.”
That brings us to the second difference in the rent to own scenario, which is that it allows those not yet able to qualify for a loan (either because of lack of an adequate down payment or because of poor credit) to have one to three years in which to work in their personal credit and actually quality.
How Can It Work For You?
The rent to own scenario is not ideal for everyone and is an unusual way to buy a home. The marketplace is quite limited, and there are not a lot of homes available for purchase using this format (though, it is safe to say that there are now more than ever). However, it allows you to move into your (potential) future home immediately, and the terms in the contract are often flexible. You might want a single year before locking into the purchase, but you can also negotiate for as much as three years of renting before you buy.
The remaining factors are a bit more complicated, and it is best to work with a professional to ensure the contract includes all of the details you need. The following points will help you decide if this path is right for you:
- Option money – Is there a one-time fee for giving the renter/buyer the option to purchase at the end of the contract? If so, what happens with that money if you opt out of the sale?
- Price – What is the purchase price of the home to be? Fixed at time of contract or flexible in the current market?
- Rent – Will part of the rent go towards a rent credit or small amount towards the closing costs?
- Upkeep – Will you or the owner be responsible for the maintenance during the rental period?
There is a lot to know about this approach, but you can streamline the process with through a membership in the Rent Own Club that helps you with all of the resources and tools needed to use this alternative path to home ownership.