In the United States, about 2 million Americans rent their home.
If you want to join these renters but also not pay someone else’s mortgage, you can get on of the rent to own homes.
But what are rent-to-own houses? And what should you know about them? Keep reading to find out!
What is Rent to Own
Rent to own houses are also sometimes referred to as a lease to own home. You purchase it with a rental agreement with the homeowner.
That means that your monthly payments are going towards reading the final cost of your home when your lease ends, which is one of the main benefits of this agreement. This lease will normally last anywhere between one to five years. However, you don’t have to buy the home when the lease is up if you don’t want to buy it.
If you live in a place where the real estate market is slow, you’ll find a lot of these offers because it’s easier for homeowners to sell their homes. It’s also great for renters to try out owning a home.
You should make sure that you read your lease before you sign it. Some places are also a lease-purchase that means you’re legally obligated to buy the home when the lease is over.
However, if you live somewhere with a hot seller’s market, it might be hard to find some of these. If sellers have other options on the table, they’ll take a deal where they don’t have to lease their house for a year or two.
How Does Rent to Own Work
Each rent-to-own home is unique in how it operates. However, most of them operate in the same kind of way.
For example, the price can be different. The price might be based on what the home’s current value is, but some sellers want to make more money so they’ll agree based on a predicted value.
The price will only become official when the seller and the buyer sign the contract. Another factor you’ll have to decide on is a rental agreement.
These rent prices will generally be higher than they would be for regular rentals because you’re paying some of the final sale price for the home that you’ll buy at the end of your lease.
You may also need to pay your seller a non-refundable one-time fee. This will give you the chance to buy the house in the end, and most sellers will put that fee towards the final cost of the home.
There’s no set standard for that fee, but normally, it’s just a percentage of whatever the final price of the home will be. In general, the average percentage is somewhere between 1 and 5%.
The lease term will also be different depending on the specific contract that the seller sets.
When you do have an option to buy the home, there’ll be a set period of time where you’ll have to decide if you actually want to buy the home.
When you’re in a rent-to-own lease, you may have to cover the costs yourself since you’ll be owning the home in the future.
They may also ask you to pay any property taxes and HOA fees during your rental term. However, since the sellers are still the owner, they may pay them for you. But it’s important to find an attorney who will read over this contract with you so that you don’t end up in any bad deal.
For example, if you don’t see any of the landscaping or maintenance mentioned in the contract, you should ask them to put it in there just so there’s no confusion.
Before you can close on the lease, you’ll also need to make sure that you secure some kind of financing if you’re going to buy the house. The lender will set a date that you’re going to have the right to own the property.
However, keep in mind that this process to rent to own isn’t as regulated as the rental and buying process. So there’s no set standard contract, which is why everything in the contract will be up for negotiation.
Before you sign any contract, make sure that you meet and talk with the landlord. Most of these houses aren’t owned by an individual homeowner, but they’re owned by real estate investment companies.
If the landlord is a real estate investment company, you’ll probably have a two-year renting contract, but you could extend it. If you’re renting from an individual homeowner, then it will be around a three-year contract.
Keep in mind that if you rent from a rent-to-own company, they’re normally publicly traded. That means that they can be more regulated than an individual homeowner. That might mean that you can trust a public company.
However, since they are a business, they want to make as much money as possible, so read your contract very carefully.
Some of these companies may even have resources that can help you with your credit. In fact, some companies also ask you to go through credit counseling to make sure that you qualify for a good deal.
Learn More About Rent to Own Homes
These are only a few things to know about rent to own homes, but there are many more factors to consider.
We know that renting or buying a house can be stressful and difficult at times, but we’re here to help you out.
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