Renting to own a home is often considered by buyers who can’t traditionally get financed to buy a home.
What Is Rent To Own?
Rent to own is where a renter/buyer agrees to rent a home for a certain period of time with an option to buy before the lease runs out. An upfront premium or a monthly premium is charged by the landlord/seller which will be applied to the purchase when the option to buy is exercised.
Why Would A Buyer Opt To Rent To Own?
A buyer will often consider a rent to own when they do not have the credit profile which will allow them to purchase a home traditionally. Usually, it is from a lack of downpayment, bad credit or insufficient income. It allows the buyer time to pull traditional financing together.
Why Would A Seller Consider Renting To Own?
A seller will often consider a rent to own in slower real estate markets where they are struggling to sell their home for the price they want.
The Downsides For The Buyer
There are many downsides for the buyer opting to go the rent to own route.
- If the option is not exercised the buyer loses their premium to the seller.
- They must follow the rules of the lease like any other renter or get evicted.
- A buyer must maintain the property like they own it, spending money they usually wouldn’t as a traditional renter.
- The buyer is hoping to straighten out their financial situation during the rental period.
- In a failing real estate market, you can be locked into a price on a house that may be depreciating.
The rent to own contracts presented by the seller is usually very seller weighted. It leaves many opportunities for the buyer to lose money. It is critical for an attorney to represent a buyer on a rent to own contract to limit their liabilities.
@KevnVitali this is a very informative article. I never realise all the loopholes until now. The UK government under former PM Theresa May was pondering a bill in this policy before losing out her re-election to Boris Johnson.
Thanks Kevn Vitali.