Rent to Own
It can be difficult to get onto the property ladder especially if you do not qualify for a traditional mortgage. One option is to try a rent to own or lease to own agreement. Many people are doing this and it can be successful for potential homeowners but there are some risks involved too.
So let’s take a quick look at Rent to Own to find out whether this type of financial arrangement is a good idea under the right circumstances.
What is rent to own?
Rent to own is essentially a lease agreement. You agree to purchase a property within a time period, usually within one to three years. To do this you typically put down 5% of the purchase price of the property which is held by the property owner and you repay a lease which is the rent plus an additional payment for the lease. This goes towards the down payment for the home.
So for example, if the rent is $1000 per month and the lease is $1300 per month, the $300 goes towards the purchase price of your property. This might not seem like much but over a three year period adds up to $10, 800. When this is combined with the initial 5% deposit, you are well on your way to owning your own property.
Why rent to own can be a good idea
Rent to own can be a good idea for people who lack the initial deposit required for a house purchase. It also helps people with a less than stellar credit history because it helps buy time to improve credit history so that you apply for a traditional mortgage once the lease period has elapsed. And of course the best thing about it is that you can occupy the property you wish to buy, rather than paying rent elsewhere and attempting to save at the same time.
Rent to own helps you save for your property
Rent to own helps you save for your property but be warned it is not the cheapest borrowing option. This type of agreement is biased in the homeowners favour because the homeowner can demand more rent for a property under this agreement. However because it acts like a forced saving plan and enables you to move into the property with a view to future ownership, many borrowers think it is worth the extra cost.
What happens if things go wrong?
Occasionally things do go wrong with rent to own agreements. If you as the tenant decide against buying the property, you may lose your 5% deposit. In addition if you default on your payments you may put your deposit at risk.
Always get expert advice before entering into any property agreement
It is important to understand the terms of your agreement before you sign on any dotted lines. So it makes sense to call in the services of a solicitor if you have any doubts or questions about your lease agreement.
In most cases, rent to own agreements work very well for both the tenant and the property owner alike. But there are always risks when it comes to opening long term financial agreements if you don’t fully understand the terms and conditions of the small print.
