Owning a home is a big goal and dream for many renters today. It takes years of planning, saving, and budgeting, but the moment you know you can start seriously looking at homes is an amazing feeling.
Some landlords and renters have come up with a seemingly nifty solution to this big transition from renting to owning: each month’s rent would go towards the down payment of the home. That way, the renter would feel like their monthly payments were going further and the landlord would also feel some security. But is it as great as it seems? Here are some thoughts to help you decide.
Double Check Your Lease
The type of rent-to-own agreement could make or break the situation for you. A lease option gives you the opportunity to buy the house before the lease is up, while a lease-protection legally binds you to purchasing the home when the lease has ended. The lease-option is highly recommended over the other.
Your Rent Will Go Up
Landlords will likely increase your monthly rent to lock you into this deal. It’s important to know that rent-to-own doesn’t eliminate your down payment, it goes towards the price of the house. Make sure your terms are extremely clear with your landlord before making anything official, so you’ll know how much of your extra rent is going towards the price of the home so there are no surprises.
House Prices Are Constantly Changing
The risk with rent-to-own is that you’ll lock in at a bad valuation. Homes do tend to value upwards, but they can also fall drastically in just weeks or months. Remember that with rent-to-own, you’re likely locking into the price of your home one to five years before you buy it.
Many people like to stick to renting to avoid responsibility for home repairs. Once you sign a rent-to-own contract, in many states it says you’ll be responsible since it will become your home. This might not bother you, but it’s good to think about all situations. If you end up defaulting on the lease, you won’t be able to buy the house, and you’ll lose the money you’ve spent on fixing plumbing, appliances, etc.
Despite some of these call-outs, rent-to-own is not all bad, and makes sense for people in all financial situations. If you’re interested in going this route with your current property or a future one, let me know and I’d be happy to walk through details with you.