The rent to own housing option

Thursday, July 26, 2012

The rent to own housing option

The current economy has rocked the housing industry in ways that have not been seen since the end of World War II. It should be a great time for a buyer because the prices of houses have slumped so low, but that isn't really happening. People cannot afford to buy homes because of pay checks that have not seen raises and other bills that are yet to be paid. The situation looks bleak but there are some alternatives to the traditional down payment and mortgage. Rent to own is a distinct possibility, but it is essential that a consumer knows what to expect before entering into such agreement.

Rent to own 

Rent to own is a lease agreement in which the renter pays for the option to buy a rented house and pays a little extra in the monthly rent. The amount above and beyond the rent goes to establishing the down payment on the dwelling. The strong benefit for renter is that while the sale may occur several years later, the price is fixed upon agreement in the lease. The period of time detailed in the option will permit a person to clear up other debts and perhaps improve a low credit score, enabling the rider to get a better mortgage deal for the ultimate purchase. The whole thing sounds almost too good to be true. That's because few people don't notice the other side of the deal.

The renter has to know if it can result in consequences that could affect the option or the down payment. Buried in the clauses of the lease may be a requirement that the option expires if too many payments are late, meaning that the money paid for the option may be gone. If housing prices continue to slide, a renter may be forced to forgo an opportunity or write off the option costs as a loss. Furthermore, there is the distinct possibility that the owner may have to foreclose on the mortgage. If the renter is not in a position to exercise his or her option at that point, once again there is a loss the renter must incur. Most landlords are highly ethical, but some may take advantage of the lease and insist the renter pay for maintenance ordinarily assumed by the owner. It should be pretty clear that there are some pitfalls in a rent to own situation.

Marc Holland is VP of Operations for a major rent to own listing service - Home Star Search. He explains that “while rent to own home programs put some people ahead, it’s important to evaluate its worthiness for your personal situation.”

None of this means that a consumer should forget about the rent to own alternative. It does have its merits, but a little bit of caution has to be exercised by the prospective renter. A person has to weigh the possibility of owner foreclosure and decide if the risk is worth accepting. The terms and conditions of the lease need to be examined and questions must be asked. The renter does need to concede on certain issues such as late payment penalties, yet at the same time insist that routine maintenance is the responsibility of the landlord. There is a certain give-and-take that needs to be respected.

This being said, there is still considerable merit in entering into a rent to own agreement. The dream of buying a home may seem out of reach but not quite. A renter can create a situation where living space can be had in the present, and the possibility of buying the property outright in the future will exist. This housing situation is a business deal that can create an opportunity that should not be ignored. Any consumer who currently does not have the capital with a credit score to purchase a home may want to investigate carefully the features of a rent to own lease.

About the Author:

Jared Diamond covers topics such as real estate and personal finance. During spare time, he also enjoys blogging about environmental preservation.

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