Rent-to-own homes are pretty popular nowadays, particularly for people who are in financial difficulty and cannot buy a house outright. However, anyone who wants to go this route to homeownership should expect a complicated process and taking extra precautions is crucial. 

So, what is the process of renting a house to own it? What are the pros and cons of this alternative pathway to homeownership? 

In this blog post, we will try to answer those questions and other matters related to the rent-to-own process and arrangement. 

Rent-to-Own Agreement: Defined

A rent-to-own agreement is a deal in which an individual rents a property for a certain lease period, with the option or obligation to buy the house at the termination of the lease. Typically, the lease period ranges from one to three years, by the end of which the tenant can opt to purchase the property. 

This strategy to homeownership helps people who require time to save money, build their credit, or improve their finances before buying a house. In this arrangement, the tenant can add a sum to his monthly rent as a contribution to the purchase of the property. 

Advantages of Rent-to-Own Homes

There are a few valid reasons rent-to-own houses are gaining popularity nowadays. Take note of these advantages if you need to be convinced to accept a rent-to-home agreement. 

Locked-in Home Prices

Rent-to-own agreements typically stipulate a locked-in purchase price, which means that both parties agree to set a minimum price for the purchase of the property. This provision is advantageous to the lessee-buyer since real estate markets are volatile. It allows room for budgeting since market fluctuations will not affect the fixed purchase price. 

Flexibility

Rent-to-own properties offer financial flexibility, which is one compelling reason for their popularity. Getting a traditional mortgage can be too stringent for some would-be homebuyers who do not have sufficient money to own a home. 

The arrangement of a rent-to-own home offers individuals to move into the property immediately while providing a viable strategy to eventually purchase the house they are currently renting. Such a deal breaks down an apparently difficult financial decision into strategic steps. 

Building Equity

The idea of building equity is appealing to many people who want to own a home. In a rent-to-own deal, you are not only paying rent but also setting aside a portion of your monthly payment toward your future property. This arrangement helps you to build equity, although you are not yet prepared to fully commit to a mortgage. 

Testing the Property

In a rent-to-own agreement, you have the opportunity to experience living in the property before fully committing to it. This chance to “test” the home during the lease period helps you avoid buyer’s remorse if ever you commit in the long term since you already know the nooks and crannies of the property. 

Downsides of Rent-to-Own Homes

Yes, you can get some advantages from rent-to-own homes, but there are also some potential risks with this arrangement. 

Forfeiture of Payments Towards the Home Purchase

Typically, there is a provision in a rent-to-own agreement that states that the sum of money added to your monthly rent as a contribution for the home purchase will be forfeited if you decide not to buy the house at the termination of the lease. So, you must think twice before entering into such a contract since it can be a significant financial loss if that happens. 

You are Responsible for Maintenance and Repairs

It is common in many rent-to-own deals that the tenant has to shoulder the responsibility for maintenance and repairs of the property. Unlike an ordinary rental agreement in which the landlord is responsible for these matters, a rent-to-own agreement may require you to spend money on maintenance and repairs. 

The Future of Rent-to-Own Homes

The market of rent-to-own homes has a pretty promising future. The wake of the COVID-19 pandemic and the unpredictability of the economy, in general, are factors that make the concept of rent-to-own appealing to potential homebuyers. 

Moreover, the increased adoption of technology in the real estate industry is also another factor why we will see more rent-to-own properties in the future. Thanks to technology, property owners and renters can now connect and transact online. 

The use of online platforms and software solutions makes the process of finding rent-to-own properties and managing the same easier. Plus, the accessibility and transparency they provide will also contribute to the increase of rent-to-own arrangements. 

Takeaway

It is vital that you understand the dynamics of rent-to-own homes. While there are advantages to this housing agreement, you should also be aware of its drawbacks. If you want to opt for this route of owning a home, make sure you read the contract before signing it. You can hire a real estate agent to help you decide on such a matter.