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What to Know Before You Rent to Own

When you rent to own, you’re basically renting the house just like you would any other rental. However, as per the contract, you have the option to buy it during the rental period. You will come across some differences though. Unlike if you were to just rent the home, a purchase price of the home is negotiated upfront and will be stated in the lease. This also means you need to get a qualified inspection and appraisal before you sign. Make sure to look at the property as if you were already buying it outright. Then bargain just as much!

Some people think that just because they do a rent to own that they can lease/purchase without a down payment. That is not necessarily true. Some contracts, including homes that are seller financed, do actually require a down payment when the purchase option is utilized. And just like other home mortgages, the amount of the down payment can be negotiated between the lender and the buyer.

Be prepared to pay a little more each month then if you were just renting. Typically part of what your monthly payment is will contribute to the down payment or the price you pay to have an option on the property. If you are making a down payment, I suggest you write out two check each month; one for the rent and the other for the down payment. This will help you to stay on track of how much you have put into the house. The bank will also want to see what was put into the house when it comes to purchasing the home.

Keep detailed records of every financial transaction. Not just your rent and down payment checks, but all your other household expenses as well. You never know what information the loan officer will want until you apply for the mortgage.

You may also want to consider hiring an experienced real estate attorney to draw up and review the contract at hand. Make sure to tell them exactly what you want to see happen and let them choose the right documents. There are numerous ways to legally set up a lease with option to buy. This is definitely not the spot for do-it-yourself legal work.

Make sure to also discuss various outcomes with your attorney. Some things you’ll need to know/ask are: what happens if you decide to buy the home, the effects of not renewing your lease, and what happens if you need to break your lease. These are all great questions to ask before signing anything.

Here is something else to consider too; you may not be ready to own a home. It is natural to not want to wait while saving for a down payment, but there is a reason that lenders do want one. The time you took to save up for it could have been spent to build up your finances or to clean up your credit score.

A lot of people are choosing to go with the rent to own option now. It may be a viable way for you to get into your dream home without a down payment. However, there are always some drawbacks you will need to consider before you make a commitment.


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