The Pros and Cons of Rent-to-Own Agreements

Considering a Rent-to-Own Property? Read This First

( – For people who are struggling to come up with the funds for a down payment on a property, or who aren’t yet sure if they want to buy a particular property, a rent-to-own agreement can have a number of potential advantages. When determining whether a rent-to-own agreement is the right solution for your property purchase, however, it’s important to take several key things into consideration, including the possible downsides of those agreements.

What is a Rent-to-Own Agreement?

A rent-to-own agreement is an agreement in which the renter has the option to purchase the property from the seller after renting for a specified period of time. You can either have a lease option agreement, in which you have the option to buy the property at the end of the specified term, or a lease purchase agreement, which will require you to buy the property at the end of the term or face legal penalties. During a rent-to-own agreement, part or all of the rent you pay will go toward a down payment on the property.

The Benefits of a Rent-to-Own Agreement

Rent-to-own agreements have a number of potential benefits.

1. You’ll have more time to prepare your finances for a property purchase.

Rent-to-own agreements can allow you to buy a home even when you do not have the money for a down payment and cannot secure a loan from the bank without one. You’ll also have more time to determine whether you can really afford the property.

2. A rent-to-own agreement may allow you to get a much better feel for the whole property.

There are a lot of problems you can discover when you’re living in a property. Many of those problems might be missed during the home inspection process. By living there, however, you’ll get a better feel for what it’s really like to live in the property and whether it fits your needs. That can give you a better idea of whether this is really the property you want to purchase.

3. A rent-to-own agreement can help you start building equity in the property.

For many people, building equity, or value, in a property is one of the key reasons to buy. People who cannot get a home loan, however, may be unable to take advantage of that benefit of homeownership. With a rent-to-own agreement, however, you can start building equity in the property much more easily.

The Downsides of a Rent-to-Own Agreement

While there are many advantages to a rent-to-own agreement, there are some disadvantages you should carefully consider before deciding if you want to move forward with that agreement.

1. You have a higher chance of losing the money you’ve put into the property than you would with a traditional mortgage.

If you decide not to purchase the property, or default on it for any reason, you may find that you lose all the funds you’ve put into the rent-to-own agreement, including any money you may have spent updating the property.

2. Several things can invalidate your lease agreement.

Sellers often put clauses in the lease agreement that are designed to protect them and their interests. Missing a payment, for example, could immediately invalidate the agreement. You may also have other clauses that can cause you to miss out on the option to buy.

3. You may end up facing steep penalties if you decide not to buy the property.

In some cases, you may need to look over the agreement and make sure you will not face financial consequences if you break the contract. It’s best to have a legal professional review the contract and advise you before signing.

Is a Rent-to-Own Agreement Right for You?

Many buyers find that a rent-to-own agreement can make a property affordable even when they have bad credit or don’t have a down payment. Carefully consider whether a rent-to-own agreement is the right choice for your needs when determining what method you want to use to purchase your home.

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