Rent To Own Exposed

By John Accornero

Rent to own seems like a great idea. What is not better than having your rent payment apply towards a purchase of a home? Do you want to own the house you rent? To boot you have poor credit ( well maybe).

First off lets get some clarity here. You have only a few years to make up your mind to buy the home. Its usually no more than two years. This is usually not enough time to accumulate a down payment.

Secondly only a portion like 20 or 30% of your rent payment go towards the principle .

Here is an analysis:

What are the disadvantages?

A rent-to-own agreement is a legally binding contract and, as with any contract, you have to be able to deliver. If you can’t follow through with the home purchase when the rental time is up — for instance, you can’t get qualified for a mortgage because of credit problems — you’ll lose your initial deposit and could face legal consequences. Also, because you were paying rent and a rental premium, you’ll have paid considerably more to rent a home than you would have in a typical rental.

Also, while it’s in your favor to lock in the price before it goes up, home values can also plummet. Sellers typically don’t use rent-to-own unless it’s been difficult for them to get offers, and it can be hard for you to get a favorable deal. You might even see a loss if home values slip or if mortgage rates go up before it’s finally time to buy.

Deciding if it’s right for you

A rent-to-own situation can be tricky if it’s not well thought out. Because there’s no standard contract for this arrangement and every state has its own regulations, it’s important to talk to a real estate attorney to make sure you fully understand the terms and responsibilities you’re agreeing to. A real estate attorney or title company can also verify that the house isn’t in foreclosure and there are no problems with the property title.

Lastly, find out if the home needs major improvements. If it does, try to negotiate a lower purchase price to take improvement costs into consideration. If you decide to make improvements and then are unable to purchase the home once the rental period is up, you probably won’t recoup that money — and the seller will have a better-looking home that can be sold to someone else for more money.

In the end you can use your money more effrctively if you buy in the beginning.

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