Rent to own houses are increasing in popularity and demand in today’s declining real estate market. More buyers, sellers, and classified sites are seeing the value in using this strategy to purchase or sell a home.
You may not have considered this until now. Or you may not know how a rent to own actually works.
What A Rent To Own Home Is And Isn’t
A rent to own is not as complicated as it may seem. Many buyers think the transaction is setup just how furniture and TVs are sold on a “rent to own” basis.
These, “buy here, pay here” companies offer consumer merchandise. They will take something like a couch that would typically cost around $300 brand new and offer it on a lease to own basis for $30 per month.
The store will allow you to keep “renting” the couch each week as long as you continue to pay the $30 on time. After several payments you will finally own the couch. But you will usually end up paying more than double what the item would cost if you had paid with cash to begin with. This isn’t exactly a bad deal for a family with a low income.
A good rule of thumb is to only buy “disposable” household items if you are able to pay with cash.
Because these transactions seem to be a perpetual cycle of payments that never want to end.
The Difference When Renting To Own – Real Estate
The real estate transaction is similar to the deal I described with the couch above, except you are not able to just make rental payments for a long period of time until you eventually own the home.
You and the seller will agree to a certain period of time for you to qualify for a traditional mortgage while you are living there renting the place.
Once this time period is over, the seller no longer has to sell the house to you!
This length of time is called the “option period.” The length of the option period is described in your rent to own contracts.
During the option period the tenant is solely responsible for improving their credit and qualifying for a home mortgage.
The main benefit of a rent to own home is that real estate values are increasing each year historically. When you move into a lease option home you lock in the purchase price at the home’s current value.
So you could potentially build $50,000 or more in equity before purchasing the house!
That is one of the major benefits for a buyer using the rent to own method.