Do you know the pros and cons of renting to own a house? When you don’t have the money to cover a large down payment, a rent to own arrangement can seem appealing. It allows you to move into your new home without having to save for years to get the down payment. Rather than wasting your money on rent, you are putting it towards owning your home.
This seems like a great idea, but is renting to own a home really as good a deal as it sounds? We investigate the pros and cons of getting into a rent to own agreement, finding more risks than you might imagine.
Pros of Renting to Own a Home
You Can Move in Without Having Arranged a Mortgage – The renting to own agreement means that you don’t need a mortgage in place before moving in. Perhaps you have other debts, or you don’t qualify for a mortgage at the moment, so putting this off for a few years will help you.
Your Down Payment Builds up Over Time – You don’t have the problem of needing to find a substantial sum of money before you can move into the house. If you don’t have the earnest money deposit to purchase a home, renting to own could be beneficial. While living in the property, you love building up your finances can become a more relaxed priority. The most significant advantage of rent to own is having peace of mind knowing you’re living in the home you eventually want to call your own.
No Competition for the Property – When your agreed term ends, you will be the only one able to purchase the house. The owner will not be able to put the home on the open market or find a different buyer unless you don’t proceed under the terms of your agreement.
If market values have gone up more than expected, you will find yourself in an outstanding situation!
Cons of Renting to Own a Home
The Rent Will be Higher – Since part of your rent will be going towards the down payment, it will mean you are paying more rent than usual for that size of a house. Alternatively, you could go for a standard rent agreement and put aside extra money each month to build a down payment.
Paying for Repairs – It will likely be part of your obligation to you to pay for any repair work which is needed on the property. You will have to pay even when there is a chance that the house won’t end up belonging to you at the end — something you will want to consider when negotiating your rent to own agreement. It’s not always a good choice to invest in a home by repairing. Those are certain situations when you need to invest a lot of money to repair the home to give it an appropriate look. However, if the renters have financial problems to pay for repairs, home improvement loans could be a great option to help them during the repair process.
The Value of the House May Go Down – While house prices generally go up, it isn’t always the case. If your contract has the purchase price agreed from the beginning, you could find that you are significantly out of pocket when the option to buy becomes available. This price may be higher from the outset to take into account increasing rates, but if the market goes, the other way you will be committed to paying more than the house is worth.
Buying an Option – Paying a percentage of the value of the house, so that you have the chance to purchase when the agreement ends, is money which isn’t going to be refunded if things don’t work out.
Seller’s Contract – The contract has been created on behalf of the seller, so their best interests are taken care of over those of the buyer. This could mean that the wording of the contract could allow the seller to avoid honoring the agreement. This will leave you without an option to buy and thousands wasted. Many rent to own agreements are boilerplate forms that should be adjusted to be fairer. Having an attorney is essential when moving forward with renting to own a house.
Changing Situations – If for some reason, your situation changes, and you don’t want to purchase the house, you will lose out. The extra money you have spent on the rent as part of the contract won’t be refunded to you, and you will lose the money spent on the option to buy as well. This will leave you thousands of dollars out of pocket.
Not in Your Control – The situation you will find yourself in is out of your control. This could mean you will lose your chance to purchase and all the extra money spent through no fault of your own. If the owner of the house gets into financial trouble, the house could go into foreclosure, meaning a lender will end up owning the home. You won’t then be able to take up the option to purchase, and you will be left with nothing and nowhere to live.
Perhaps the seller just decides they don’t want to honor the agreement anymore. Could you afford the expensive legal case to get your money back or your option to buy?
Concluding Thoughts on Rent to Own
Renting to own may appear to be a great way to buy a home, but there are far more potential downsides ahead of the benefits. The rent to own agreement is a legal document, but despite this, there are many ways in which things won’t play out the way they are supposed to. And if that happens, you will lose out in a big way.
You are better off keeping control of your own money, continuing to make money fast, and setting aside cash every month to save up for a down payment in the future. The rent to own contract could be a costly mistake you shouldn’t take the risk with.
Before entering into a rent to own agreement, always weigh the pros and cons before making such a significant life-altering decision. In the end, you may decide there are more downsides than it’s worth.