Rent-to-own homes are becoming increasingly popular among people looking to purchase a home but are suffering from bad credit scores. While rent-to-own contracts can be mutually beneficial to both buyers and sellers, there are several risks associated with them that should be kept in mind. So, let’s take a look at the benefits and drawbacks of rent-to-own homes to see if they are worth it.
Rent-to-own allows prospective buyers to lease a property for a certain period of time with either an option or commitment to buying it once the lease ends. Both the buyer and seller agree on a purchase price for which the buyer can purchase the home in the future. The buyer is usually required to pay monthly rent and an extra amount which acts as part of their down payment. Eventually, these extra payments will be credited towards the purchase price at the end of the contract. This extra amount is usually nonrefundable and may be lost if the buyer does not end up purchasing the home.
Rent-to-own homes tend to be appealing to some buyers that can’t qualify for a traditional home loan due to bad credit. It also makes sense in markets where home prices are increasing, since the purchase price of the home is usually set a few years in advance. Renting the home before purchasing also allows the buyers to test out living in the house.
However, not paying rent on time or deciding not to purchase the house may cause you to lose all of your previous payments. In addition, rent-to-own contracts do not usually follow a standard template, therefore it is highly recommended to have a real estate attorney take a look at it. Rent-to-own contracts can also be very risky for buyers with poor credit and that are looking to purchase a home. Some sellers will intentionally rent out homes to potential buyers who are struggling financially and will likely be unable to pay the required amount. This means that the buyers will lose a large portion of their money and have nothing to show for it once the contract ends.
Overall, Rent-to-own homes could be worth it for those who are unable to get a traditional home loan and are expecting property prices to rise in the upcoming years. However, this route is a risky one for those who find it difficult to stay on top of their finances.