Rent to own houses have become increasingly popular in recent years, especially among those who cannot afford to buy a house outright. In this article, we will discuss what rent-to-own houses are, how they work, their benefits and drawbacks, and how to start the rent-to-own process.
What is Rent to Own Houses?
Rent-to-own is a type of agreement that allows renters to purchase the home they are renting after a set period. This agreement is also known as a lease-option or lease-to-own agreement. Rent-to-own houses give tenants the option to buy the property they are renting, usually after two to five years, by paying a pre-determined price. This agreement is particularly beneficial to those who may not qualify for traditional home financing or are looking for a way to improve their credit score.
How Does Rent to Own Houses Work?
The rent to own houses agreement has two parts: the rental agreement and the option-to-purchase agreement. The rental agreement works like any other rental agreement, with the renter paying rent to the landlord for the use of the property. The option-to-purchase agreement gives the renter the right to purchase the property at a pre-determined price within a specified period.
The option fee, which is usually around 1% to 5% of the purchase price, is paid upfront and is non-refundable. The option fee is a payment for the right to purchase the property at a later date. Additionally, a portion of the rent paid each month is usually credited toward the purchase price of the property.
Benefits of Rent to Own Houses
There are several benefits to choosing rent to own houses over traditional home buying, including:
Increased Flexibility
Rent-to-own houses offer flexibility to tenants who are not ready or able to buy a house outright. The rent-to-own agreement allows tenants to live in the property and pay rent while they build their credit score, save for a down payment, or wait for the right time to buy.
Improved Credit Score
Rent-to-own houses offer a way for tenants to improve their credit score by paying rent on time each month. Many rent-to-own agreements require tenants to maintain a good credit score to qualify for the option to purchase an agreement.
Ability to Test Drive the Property
Rent-to-own houses allow tenants to test drive the property before deciding to buy it. This means tenants can live in the property, see if it fits their needs, and make an informed decision before committing to a purchase.
How Much Does It Cost?
The cost of rent to own houses varies depending on several factors, including the location, the size of the property, and the duration of the agreement. The option fee, which is usually 1% to 5% of the purchase price, is paid upfront and is non-refundable. Additionally, a portion of the rent paid each month is usually credited toward the purchase price of the property.
Pros and Cons of Rent to Own Houses
Rent-to-own houses have both advantages and disadvantages that tenants should consider before signing a lease-option agreement.
Pros
- Increased flexibility
- Improved credit score
- Ability to test drive the property
Cons
- Non-refundable option fee
- Higher monthly rent payments
- Risk of losing the option fee if unable to purchase the property
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How to Start the Rent to Own Process
Starting the rent to own houses process is relatively straightforward. Here are the steps to follow:
Step 1: Find Rent-to-Own Houses
The first step in the rent-to-own process is finding properties that offer lease-option agreements. Tenants can search for rent-to-
Step 2: Review the Terms of the Agreement
Once a tenant finds a rent-to-own property that interests them, they should carefully review the terms of the agreement. This includes the duration of the agreement, the purchase price, the option fee, and the monthly rent payments.
Step 3: Get Pre-Approved for Financing
Tenants should get pre-approved for financing before signing a rent-to-own agreement. This ensures that they will be able to purchase the property when the option to purchase becomes available.
Step 4: Sign the Rent-to-Own Agreement
If the tenant is satisfied with the terms of the agreement, they can sign the lease-option agreement. This includes paying the option fee and beginning to pay rent on the property.
Step 5: Exercise the Option to Purchase
Once the option to purchase becomes available, the tenant can exercise it by paying the purchase price agreed upon in the lease-option agreement. This includes the portion of the rent paid each month that is credited toward the purchase price.
Conclusion
Rent-to-own houses offer an attractive option for tenants who are not ready or able to buy a house outright. This agreement allows them to live in the property and pay rent while they build their credit score, save for a down payment, or wait for the right time to buy. However, it is important to carefully review the terms of the agreement and consider the pros and cons before signing a lease-option agreement.
