Should You Rent-to-Own a Home?

Renters who want to own a home may lack a down-payment or solid credit needed to obtain a mortgage loan from a conventional lender. Rent-to-own properties may require the renter to fix certain items in the home or, in other instances, require the renter to make at least a year’s rental payments on time. Although specifics vary by rent-to-own lenders, it’s possible for renters to own a home when their ability to borrow from the bank or down-payment funds is restricted.

Considerations

Rent-to-own properties are likely to cost more than comparative properties available for outright purchase. It’s important to review the terms and conditions from the private lender to make sure they’re agreeable. For instance, the owner may require a balloon payment on the property at some future point. Alternatively, the lender may need the renter to fix the roof, furnace, heating or air conditioning as part of the loan agreement. The borrower must either pay someone to make these repairs or possess the skills to perform the tasks.

Time

Some rent-to-own lenders reserve a portion of the borrower’s monthly rent as part of the future down-payment. There may be terms and conditions associated with the lender’s agreement to conserve any portion of the rent for this purpose. For example, the renter must make each payment on time and complete any other agreements with the lender by a certain date. If the renter fails to pay or make improvements or repairs on time, the privilege (if granted) may be rescinded.

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Kuba Jewgieniew is a real estate expert, and founder of Realty ONE Group. As a former stock broker, Kuba Jewgieniew is able to strategically use data to inform Realty ONE Group’s approach to sales.