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Why choose rent to own?
Opting for a rent-to-own agreement instead of purchasing a home outright offers several benefits, such as:
- Building Credit Score: Those with lower credit scores can leverage a rent-to-own agreement to improve their credit while living in the home.
- Saving for down payment: The rental period enables the tenant to save for a down payment, making it easier to qualify for a mortgage and purchase the home later on.
- Trying Out a Neighborhood: Rent-to-own allows tenants to test out a neighborhood before committing to purchasing a home in the area.
- Flexibility: Unlike a traditional mortgage, rent-to-own offers more flexibility, allowing the tenant to choose not to buy the home at the end of the rental period if it doesn't fit their needs.
- Avoid competition: Rent-to-own can provide a way for tenants to secure a property in a competitive housing market, potentially avoiding bidding wars and other competitive situations.
However, it is crucial to carefully review and comprehend the terms of a rent-to-own agreement, as there may be drawbacks and potential risks involved.
How does rent to own work?
The process of a rent-to-own agreement usually operates in the following manner:
- Rent and Option Fee: The tenant pays monthly rent and a one-time option fee, which provides the tenant with the choice to purchase the property at the end of the rental period. The option fee, frequently a percentage of the final purchase price, is applied to the purchase if the tenant decides to buy the home.
- Lease Term: The lease term is typically between one to three years, during which the tenant resides in the property and pays rent.
- Option to Purchase: Upon completion of the lease term, the tenant has the option to purchase the property. The option fee paid at the commencement of the rental period can be used as a down payment if the tenant chooses to buy the property. The purchase price is pre-determined, usually based on the current market value of the property.
- Obligations and Restrictions: The tenant is responsible for paying rent, maintaining the property, and adhering to the terms of the lease agreement, while the landlord is in charge of any necessary repairs and upkeep of the property. Certain alterations to the property may be forbidden during the rental period.
- Closing the Sale:
A real estate agent or attorney usually handles the sale, which is carried out similarly to a traditional home purchase, if the tenant decides to buy the property.
It is critical to fully comprehend the terms of the agreement and have a written contract that specifies all conditions, including the purchase price, the option fee, the lease term, and any obligations or restrictions.
