The term “rent to own” was once reserved for retail stores where consumers with poor credit could make installment payments on furniture, appliances, and electronics. But nowadays – thanks in part to an abundance of homeowners who cannot sell their houses quickly enough, reluctant banks that are not eager to finance houses, and renters who lost their previous homes to foreclosure – many homeowners are willing to work out rent to own agreements with prospective buyers.
Rent to own homes: How it works
Rent to own homes are similar to car leases. Renters pay a set amount each month to live in the house, just as lessees pay to drive a car each month. A portion of each month’s rent is income for the seller, and another portion is set aside toward a down payment to eventually purchase the home. After a set period – for example, three or four years – the renters have the option to buy the house, just as lessees have the option to purchase the car they had been leasing.
Pros and cons of renting to own
When it comes to rent to own homes, there are both pros and cons for both parties involved. Pros for the buyer include being able to get a feel for the house, the neighborhood, and area schools before making the final decision to purchase. The procedure also gives buyers more time to save for a down payment while they are living in the house.
On the flip side, buyers will lose their investment – the portion of each month’s rent that was being allocated for the future purchase – if they fall behind on payments and are evicted, if they have to move out for another reason, or if they simply change their minds. Also, the home’s value could decrease substantially between the rent to own contract agreement and the actual time of purchase.
Rent to own agreements are considered beneficial for sellers that have to relocate for work purposes and wind up with two mortgages. They receive a monthly payment that can go toward their mortgage payment on the house without waiting for the house to sell outright.
Beware! Things to watch out for
If you decide to rent to own a home, it is in your best interest to investigate the home’s purchase history and view its deed – this can be done at the clerk of the court’s office and often online. You should also ask to see several months of recent mortgage statements and receipts from the current owners to ensure they are up-to-date with their payments.
Scam artists have been known to “rent” vacant homes they do not even own, pocket the money they receive, and skip town, leaving renters in quite a predicament. Some legitimate homeowners also scam their future homebuyers by accepting rent to own payments with the promise of future purchase even though the home is in foreclosure.
Whether you are the current homeowner or the renter, it is in your best interest to have a real estate attorney create a contract to ensure that all legal avenues are covered should you decide to rent to own a home.
Paul Moore assists corporations in the booming oil regions of North Dakota, provide quality housing for the influx of laborers to the fields. See http://bakkenresidencesuites.com to find out more.
* Image attribution: Royalty Free or iStock source: http://bigstockphoto.com
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