People who would struggle to qualify for a mortgage owing to a lack of money or poor credit ratings have a road to homeownership thanks to rent-to-own programs. You may seek guidance from experts at companies like Lang Estates – eXp Realty, as these programs may be challenging and need customers to approach them with the same attentiveness as a conventional house purchase.
That includes having the contract reviewed by a real estate attorney and getting a home inspection and appraisal before signing.
Determine Your Needs
Many renters dream of buying their own homes. However, high prices and living expenses often make saving enough for a down payment impossible.
Rent to own programs allow buyers to start saving for a home while still renting it. It also allows them to build their credit score and earn equity in the property.
But it’s important to understand that rent-to-own agreements differ slightly from traditional leasing arrangements. Most include a purchase option that explains how the buyer can buy the property at a future date. This contract may also establish whether a portion of the monthly rental payments goes toward the home’s purchase price.
This arrangement can be attractive for sellers if they’re still waiting to sell their home but want to keep it in the market for a while. But it’s important to consider the risks involved with this type of agreement, including that the buyer might lose their purchase option if they miss a mortgage payment or fail to notify the seller that they intend to buy the property.
Determine Your Budget
A rent-to-own agreement can be smart if you need more time to buy a home. It allows you to improve your credit score and save money for a down payment. Plus, it allows you to avoid the high private mortgage insurance costs.
However, you must carefully review a contract’s terms to ensure it’s right for you. For instance, ensure that the contract spells out how much of your rent payments go toward purchasing the property, whether or not you’ll pay an option fee up front, and who is responsible for maintenance.
In addition, you’ll want to understand how long the rental term will be. If the contract lasts just a few years, it might not be financially wise. Likewise, if the property’s value plummets during that time, you may pay more than it’s worth. That’s why keeping your eye on the ball regarding budgeting and saving is important.
Talk to a Lender
A rent-to-own agreement can benefit both parties. For buyers who struggle to build savings for a down payment or have credit challenges, it can buy them time to get their finances in order and improve their scores. The contract also allows them to live in a neighborhood they love before committing to buying.
However, because of the less-regulated nature of this type of transaction, it is vital to discuss all aspects of the contract with a trusted real estate agent and attorney on the front end. This will help you understand the stipulations and ensure they are right for you.
In addition, it is important to learn about the local housing market to determine whether a house will appreciate during your rental period. Otherwise, you may pay more for a home than it is worth. This could cause difficulties when it comes time to apply for a mortgage.
Find a Property
There are several things to look for when searching for rent-to-own homes. Most importantly, be sure to read the contract carefully. Look for the lease term and how the home’s purchase price will be determined if and when you decide to purchase the property (it may be fixed at the beginning of the lease or closer to expiration). Also, determine who is responsible for covering maintenance, homeowners association fees, and property taxes.
Rent-to-own programs can be a great option for people who don’t have enough money saved to buy a home outright or who need time to pay down debt or improve their credit scores before qualifying for a mortgage. But they can come with added expenses and risks, and monthly costs are typically higher than on a traditional lease. And if you aren’t able to buy the house at the end of your lease, you could lose the option fee you paid to move in.