In a certain time in your life, you have to start thinking of your own home. Not just a place to sleep through the night, but an actual Home where you can start your family and make awesome memories.
There are several ways to get to your dream home. Some easier, some harder, in the beginning, but they all have the same result – your piece of paradise. If you are lucky and you have money, then the road to your new home is fast and easy. Few trips to the bank, good credit history, a cash deposit and you can pick the size, neighbourhood and move in your things.
If you somehow can’t use traditional ways to a new home mentioned above, then your road is a little longer and a little trickier, but there is a solution.
Rent-to-Own is a way to go if there is no other option. It originates from the UK and continental Europe and it started to develop in the 1950s and 1960s in the USA. As a specialized real estate agreement people used it during housing market downturns, the one from the 2000s comes to mind first, and it somehow kept afloat since.
When it comes to real estate these agreements mean that you rent a certain estate for some time with an obligation to buy it after the agreed time expires. With that in mind, you have two standard parts that make this agreement and it is a standard lease agreement and an option to purchase. One more thing must be mentioned and it is the one-time nonrefundable fee. This fee is your guarantee that you will buy the property after some time. It is mostly negotiable and it moves between 1% to 5% of the real estate’s asking price.
Now let’s see the cons and pros of this type of homeownership
1. No control over the home
What this means is that you still do not own the property although you agreed to buy it after some time. Until then you are just loaning the real estate and you can’t make any changes to it when and how you want. Everything has to be cleared with the landlord, which might be a little tricky sometimes.
2. Money loss
You can lose money here and in a couple of ways. If somewhere by the road you end up in a money problem, you lose all and any nonrefundable fees you paid up to that time. You also lose the right to buy the property if you can’t get a loan for it in time. Another thing that can make you lose money in a deal like this is the fact that the landlord can fall into debts of his own, or even stop paying taxes. This could lead to foreclosure and eventually means you lose the right to buy the property and end up homeless.
In a deal like this, you are reliable for all and any repairs that have to be done to the home. It can be a good and bad thing at the same time because you can fix it up and invest in it as you wish, but it can also be a money pit that will take more and more money from you, and you may not end up buying it at the end.
4. Value loss
One more thing that is concerning is the fact that your property may end up losing value over the rent time. It is obligatory to pay the price you agreed at the start of the Rent-to-Own agreement, so at the end of the rental period, you may be giving a lot more money than the property is worth. On the other side, this can also be good for you because if the market flips the other way around and the real-estates price skyrockets, then you could end up with a potential profit.
The upsides of the Rent-to-Own are
5. No Mortgage problems
If you have a bad credit score, maybe some loans, this type of homeownership is for you, because you don’t have to wait to get rid of loans or your credit rating to go up. Move-in, make yourself like home instantly and wait until your credit score goes up.
6. No down payment
If you are looking for a new home but don’t have enough or anything for a down payment then, once again this option is for you. You can move in your dream home and treat it as yours, while you gradually build up cash that can help you at the end of the rental period.
7. No competition
When buying a home competition is a big problem, especially if you find yourself in a bidding war with someone that wants it as much as you do. This type of a home deal is good because you are the only person that gets to keep the property after the rent period is over.
8. Trial period
This agreement allows you to, sort of, test drive both the property as well as neighbourhood. For some, this is an important thing and a big step when buying a property to call home. If there is a single thing that is off, then you can always back out of the deal, just be sure to do it before it ends costing you a lot of money.
The bottom line to all of this is read and inform yourself carefully. Each contract is binding in its sort of way, so be careful to read the fine print. If you want to familiarize yourself with these things spend some time on the web, start with those pros and cons. Knowledge is power so try and get to know everything you need to make an informative decision. Researching both the home and the seller is always a good thing. You will get a bearing on where to orient yourself, from process to fidelity of the landlord.