If you are currently thinking about purchasing a new home you may have already run across the term “rent-to-own”. In fact, many buyers are trying the process out as a new way to enter into home ownership, so it is only natural to be curious about the option. Any real estate professional will be able to discuss it in more detail with you, but here we will take a look at exactly what “rent-to-own” actually is and how it may benefit a buyer.
So What Is It?
“Rent-to-own” is simply a different method of purchasing a property than the more traditional one of making a down payment and securing the loan required to make the house purchase. Instead, the potential buyer is afforded the ability to rent the property that they are thinking about purchasing before they make any commitment towards buying it.
This places the buyer in the unique position of being able to try before they buy. Rental periods will typically last between one and five years, allowing the buyer to familiarise themselves with the house and make sure that everything is as they would want it to be for a potential purchase.
This period will also offer the buyer the chance to save a little extra money and work with a real estate agent to prepare all of the relevant paperwork, all while they are living in the property instead of making them wait on the side-lines until everything has been done. Simply put, it is an excellent way to get on the property ladder quickly.
So What’s The Catch?
The only real catch for a buyer is that at the beginning of the rental period they will be asked to pay something known as option money. This money is essentially what secures the renter’s right to purchase the property after the lease has expired and is often a non-refundable fee.
While the option money will be a lot less than the down payment on a new house would be, you must always keep the fact that it is non-refundable in mind. This opens up some extra risk, as it means that you won’t be able to get that money back if you end up not liking the house. Furthermore, if you are unable to get fully prepared to make the purchase during your rental period you will also lose out.
So Who Should Do It?
“Rent-to-own” is an excellent option for those who want to move into a new home as quickly as possible but don’t currently have the fund to purchase their own property. It allows the would-be buyer to get all of the perks of owning a property, while also affording them the extra time that they may need to raise the funds to purchase that property.
It carries a certain amount of risk, as the buyer does lose out on the money they paid in rent and what option payments they have to make if they end up not buying the house, but for those who are new to the market it is an excellent alternative route to property ownership.