Rent-to-own is an attractive option for many people. Renting is currently soaring in popularity, especially with millennials.
In fact, the percentage of Americans choosing to rent is at its highest level since 1965. Many of these rental agreements have a purchasing option included.
These rent-to-own agreements are perfect for people that are uncertain about buying. Perhaps they need more time to save for a down payment or improve their credit score.
Some younger buyers are apprehensive about long-term commitment. There are many reasons why people are shopping for rent to own homes.
Read on to learn more about these homes. Explore what makes rent-to-own agreements so attractive and whether you should consider it.
How Does a Rent-To-Own Agreement Work?
In its simplest form, a rent-to-own agreement is still a rental or lease agreement with a landlord. It is slightly different because it includes an option to purchase the home at a later date.
The typical timeframe laid out in a rent-to-own agreement is three years. During this timeframe, a portion of the monthly rent is redirected towards a future down payment on the home. This additional payment is the landlord’s incentive to committing to you for the long-term.
The terms and conditions in the rent-to-own agreement are critical for understanding the pay structure. A trustworthy agreement will define how the monthly rent is allocated.
The agreement should clearly state how much of the rent is contributing to the future down payment. It should also call out the future purchase price of the home. Continue reading to learn more about strategy for rent-to-own agreements.
What Are Some Tips for Rent To Own Homes?
The legal requirements for a rental or lease agreement are less stringent than a home purchase. For this reason, renters should exercise caution and follow some important rules of thumb.
The first is to make sure that the rental agreement does not obligate you to purchase the home. An obligation-to-buy agreement does not allow you to cleanly walk away from the rental property.
Another pro tip is to pay for a home inspection and appraisal before signing the agreement. With the potential for a long-term commitment, you want to know about any major issues lurking under the surface.
An appraisal ensures that you are paying fair market value. Remember, the future purchase price is listed on the agreement.
Also, try to get pre-approved for a real estate loan before signing the agreement. This ensures that you can afford the property once the purchase option is exercised. If you do not get pre-approved for the desired amount, learn what needs to change before the option is triggered.
A Recap of Rent-To-Own Agreements
Rent-to-own agreements are truly a great option for people that want to make a solid investment decision. It allows you to prepare for a mortgage and ensure the house is right for the long-term.
The key to a successful agreement is carefully reading the terms and conditions. This way you secure a fair deal with your best interests in mind. If you enjoyed this article about rent to own homes, check out our blog for other great pieces.