I often get calls and inquiries from hopeful buyers who want to look at "rent to own" options. I get the feeling these buyers want to own a home so very badly, that they are willing to do anything to call a home there own and rent to own is usually the last resort. While a rent to own can work out for both the buyer and seller, these are usually set up to protect the seller. Here are 4 things you should know about rent to own homes.
1. OPTION MONEY
Most buyers look at this route because of bad credit, and sellers know this. The seller will usually require 3%-10% of the purchase price as "option money". This money is held in an escrow account (with a neutral, third party) for the duration of the rental. Once the rental term is up (usually 1-5 years), the money is used as the buyers down payment for the purchase. If the buyer decides to not purchase the home, the seller keeps the money. So what happens if you decide you don't like the house, or interest rates go up and you can't afford the house? What happens if your job transfers you, or life changes and the homes doesn't work for your needs? You lose the money!! This is perhaps the biggest reason I caution buyers to carefully consider a rent to own.
2. RENTAL MONEY
Along with the money the buyer puts in the escrow account, the buyer will also pay a monthly rental fee. This money is not credited to the buyer in anyway, other than allowing the buyer to occupy the home for that month.
3. IF SOMETHING BREAKS
Unlike a normal rental, most rent to own situations are set up in such a way that the buyer is responsible for all utilities, maintenance and repairs. If something breaks, the buyers is fully responsible. Although you are renting, you lose some of the best rental "perks".
4. PURCHASE PRICE
One benefit of a rent to own can be (although not always true) the locked in purchase price. Many times the purchase price is agreed upon at the beginning of the lease. If the option to buy isn't due for 2-5 years, it is likely homes prices could go up, locking the buyer in to a great purchase price with instant equity. On the flip side, if the market goes down, you could be stuck with a home that won't appraise (meaning you can't get a loan on it).
CONCLUSION
In my opinion, I would much rather see an anxious buyer practice some discipline and patience, work on their credit, save up some money and buy a house the traditional way! It is almost always a safer bet for the buyer. I know it is hard to be patient, but every buyer that I have walked with down this road, is much happier at the closing table when they wait.
If you are anxious, excited and ready to buy, but still have a long road ahead of you to pay off/down debt, fix credit, save some money, let's talk. One of my favorite parts of this business is walking alongside those buyers and getting them to the buying point. The reward for me is handing those buyers keys to their new home after months and often years of preparation! Don't wait - get started NOW!!! And let me know how I can help you a long they way!
REALTOR
Cannon and Company, Real Estate Services
801.518.1806 (call or txt)
