Planning to buy a home is a big decision for most Americans. Not only is it a big financial commitment, it's also a pretty large emotional commitment for many. So, if you're not sure you're ready for home ownership quite yet -- but you want to work toward that goal -- there's a great compromise solution just for you. What is it? Rent-to-own housing.
While most people think of "rent-to-own" in terms of computers or furniture, it's a growing real estate tool as well. Here's how it works and what you should know before taking the plunge.
Renting a home "to own" (often called lease-to-own, as well) means that you find a house for rent that you believe will be a good fit for you... then, you rent it for a period of time first. Contracts between homeowner and renter are often for 2 to 5 years. At the end of this term, you will have the exclusive option to buy the home from the current owner. A portion of your rent payments will have been held in a trust and returned to you for use as part of your down payment.
So, who can benefit most from this type of purchase agreement? Buyers who aren't sure they're ready for the responsibility of being a homeowner quite yet or who want to live in the area first. And those who haven't saved up all of the down payment. A rent-to-own agreement usually locks in a purchase price -- so if you're in a rising market, this is a great way to get a good deal on your house. Landlords who have houses for rent benefit by having a steady and motivated renter (who will usually care for the home better than others would), while knowing that they also likely have a buyer later as well.
What to Know First
Before signing a contract with a property owner, be sure you do due diligence just as if you were purchasing the home right now. This includes having it professionally inspected, verifying that there are no property liens against the home, and confirming that taxes and mortgage obligations are being paid. In addition, be sure you understand how much of your monthly payment goes toward your down payment and what would be refunded if you choose not to buy. Finally, if the real estate market is depressed in your area, be sure you know whether or not you can renegotiate the price at the end of the contract.
Whether you're a reticent home buyer or just one who isn't quite in the right financial spot, a delayed purchase through renting-to-own can be just what the doctor ordered.