As a team of local realtors, The Louisiana Homes and Land Group at Keller Williams have come in contact with all sorts of ways to purchase a home. "Rent to Own" has recently been a popular topic of debate. Before purchasing a home through "Rent to Own" it is extremely important to be informed of the risks that come along with "Rent to Own".
If you don't have the money for a down-payment or your credit isn't quite where it needs to be, you may have thought about purchasing a home through "Rent to Own". But do you know what this term really means in its entirety?
Think of the "Rent to Own" process like leasing a car. Renters pay a monthly rent each month to live in the house. At the end of a set period, the renter is given the option to purchase the home. Generally, this set time period is three years. The rent that the renter pays each month goes to the owner of the home for income. However, the owner holds a portion of the rent to go towards the renter's down payment at the time of purchase.
Disadvantages to Rent To OwnA disadvantage for both parties in a "Rent to Own" situation is that prior to entering into an agreement, the seller has to decide the rent and sale price that they will charge for their home. Both the rent and the sale price are negotiable, however once the agreement has been signed by both parties, the prices are locked in. This is crucial, as the market can change dramatically between the time the agreement is signed and the buyer actually purchases the home. Not only is this a disadvantage to the seller, since the market value of their home may have increased but this is also a disadvantage in the situation that the home has lost value. If a home does not appraise for the purchase price that was set in the "Rent to Own" agreement, then the buyer's lender will most likely not lend this amount to the buyer. In this situation, the buyer is able to cancel the purchase agreement due to inability to obtain financing.
Another disadvantage to an individual looking to buy a "Rent to Own" property is that their rent is generally higher than the average rent price. This is because the renter pays an option fee above the rent amount. As previously mentioned, this option fee is to be used as the renter's down payment for purchasing the home. If the renter does not end up purchasing the home at the date stated in the contract, the option fee amount may not be returned to the renter.
It is very important to remember that you can not control what someone else does. If the seller fails to pay the original mortgage on the house, the house may become foreclosed and the buyer is forced to move.
Another problem that often arises is that once the rental period has ended and the buyer is still not able to purchase the home due to bad credit or insufficient income. The renter will most likely lose the option fee that they had been paying each month.
In a standard, [Non-Rent to Own] renting situation, the landlord will pay for any repairs that need to occur to the property. HOWEVER, this is usually not the case in a rent-to-own situation. In most "Rent to Own" situations, the renter is responsible for repairs.
As the seller of a "Rent to Own" home it is important to keep in mind that you are in a binding contract. That means if someone comes along offering a higher price for your home, you are out of luck and can not accept this higher offer.
It does not cost you anything at all to speak with a lender to see how much you are per-qualified for. If it turns out that you do not meet the credit score requirements, our lenders will be more than happy to tell you exactly what you need to do to get your score where it needs to be. Click here to get per-approved for a mortgage loan or give us a call today 225-366-8656.
There are many alternative to "Rent to Own". Call The Louisiana Homes and Group today at 225-366-8656 to hear all about your options, including Rural Development financing which offers NO DOWN PAYMENT and 100% financing.