Here is the scenario…..a couple looking to purchase a home sometimes find themselves in the position of being ready but not quite financially prepared. They could also be waiting on the sale of their home before they will be able to buy another. During that waiting period, they may have to rent. What if they found the home they want to buy and could rent it until they can purchase? That’s an option!
Whether the issue is a lack of down payment, too much debt, lingering issue with their credit such as a foreclosure in the past, or even a divorce……. sometimes buyers just have to wait while they work on their credit profile or save more money before they can buy a home. In such a case, a rent-to-purchase agreement can sometimes be a solution.
Rent-to-purchase agreements vary in their exact terms, but generally the property owners and renters sign a contract in which the renter agrees to rent the property for a specified time. The renters typically agree to pay an above-market rent, with the excess rent credited toward a down payment when the contract ends. They would have established a sale price of the home prior to signing this agreement.
Benefits for Both Sides
A rent-to-own deal offers prospective buyers an opportunity to settle into a home they want to purchase while they continue to save for a down payment, improve their credit score, or wait for a negative factor on their credit report – such as a foreclosure or a collection – to fade into the past.
As a renter however, you should weigh the option of a rent-to-purchase contract versus renting a less-costly home and saving money for a down payment on your own. Of course, if you love a house and are determined to buy it, a rent-to-purchase contract could be a good idea, even if it’s a little more expensive.
Make sure you understand some important tips before moving forward on a rent-to -purchase agreement:
- Decide on length of the lease period.
- Agree on the rent amount.
- Rent credit for down payment and how it will be held until the time of purchase. Both sides need to agree in writing what will happen to the credit if the renters opt out of buying at the end of the contract.
- Who will pay property taxes, insurance and homeowner fees during the lease period.
- Who will pay for utilities, maintenance and repairs during the lease period.
- Hire an inspector prior to purchase even though you have been living there as a tenant.