If you’re looking for a new place, you may have noticed that some rental ads mention that the lease includes a “rent-to-own” option. What exactly does this mean?
When you sign a rent-to-own agreement, you are not only agreeing to rent your home under the terms of a normal lease, but you are also accepting an option to purchase the property within a specified period of time—normally one to three years. Tenants are not obligated to buy the home, but they have the option, and the landlord is committed to the terms of the contract. This can be a good option to consider if you no longer want to rent, but you’re still not quite ready yet to buy.
Advantages of rent-to-own
Some landlords will put a small portion of your monthly rent towards your purchase, so if you do decide to buy the home, you’ll already have some money toward a down payment for it. This can be especially helpful if you weren’t able to obtain a mortgage initially due to poor credit and/or lack of a down payment; already having some money saved toward the down payment might make it easier to obtain a home loan.
You may have the opportunity to lock in a purchase price, which can be beneficial if property prices in the area end up increasing by the time you buy.
You can get to know the neighborhood and the actual home itself without making a huge commitment. If you love it, you can purchase the home and won’t have to worry about finding another one and moving. With a traditional rental, you may be forced to leave even though you absolutely loved it, simply because you were ready to buy. Rent-to-own gives you the opportunity to stay and own the property you’ve already made your home over the years. Some homeowners, however, end up realizing after they’ve already purchased a home, that they’re unhappy with the area. If it’s to the point where they want to leave, then they have to worry about selling the home or finding a tenant. But with rent-to-own, you have no ties to the home and you have the option of just moving out like with any other rental.