What is Rent-to-Own Homes and How do They Work – 2021 Guide

When people look for a new house, they tend to be picky about all sorts of things. It doesn’t matter how great the house is looking, a new owner will surely try to make some changes once he or she buys it. We can see that there are a lot of moving to the US. In 2019 alone, around six million houses were sold.

One of the reasons why so many houses are sold is that buyers now have more options to do that than they ever had. Some of these don’t require them to break the bank when they decide to move to another home. One of these options is called rent-to-own. In this approach, people have the option of living in a home, pay rent every month, and they have the option of becoming owners after the contract has expired.

However, you cannot learn all about it at once. That’s why we have decided to provide you with a guide based on the initial research. Here, you will find an answer to the basic questions about this concept. Without further ado, let us take a look at these.

What is Rent-To-Own?

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As we’ve said, rent-to-own is an agreement that allows the future resident to become an owner after a certain period. Of course, it means that the resident will need to pay a higher rent than the one that can be seen at the market value. The reason is that this amount is later converted to the down sum when the lease has ended.

Depending on the agreement, the resident will need to make a sum on the option fee, which is between 2% and 7% to have the chance to keep the option of buying in the future. In case you give up on buying a property for some reason, these extra payments will not be brought back. Therefore, before you opt for this option, you need to come with a financial plan that you will follow strictly.

How Does it Work?

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On average, these contracts or agreements last between one and three years. Also, you will see that they have three main components. Now we would like to talk about these factors.

  • Lease Fee

The first one we would like to discuss is a lease choice fee. As its name is saying, we are talking about an open deposit that makes it possible for you to purchase the home after the contract expires. The usual fee is between 2% and 7.5%. But that doesn’t mean that you should think that this is the only option.

Thankfully, it is something that you can negotiate with a homeowner. If you decided that you don’t want to buy that property for some reason, then you can forfeit it. At the same time, if you want to continue with it, it will be calculated as a down payment, which surely makes this process smoother.

  • Purchase Price

Before the agreement is concluded, the question of purchase price needs to be determined. Of course, the price is negotiated between the renter and the future resident. By doing that, both parties will make sure that there are no sudden changes.

Naturally, neither of these parties is interested in this happening at some point in time. In most cases, the price will be slightly higher. The idea behind this rise is to compensate the homeowner for taking the possessions off the market. Certainly, this element is the most important factor in every rent-to-own contract.

  • Rent Premium

The third and final element is called rent premium. We are talking about a percentage of each rent that is moved aside, and it serves as a payment. The homeowner is keeping this percentage until the buyer decides to make a purchase.

Since this percentage is not refundable in case the buyer decides not to buy, it needs to be planned carefully. As we’ve already mentioned, these payments will be slightly higher than the one determined by the market for obvious reasons.

Why You Should opt for It?

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There are numerous reasons why rent-to-own has become increasingly popular in the last couple of years. But we will mention some of them.

Testing

One of the biggest virtues of this approach is that people can live in a home without being owners. At the same time, by paying rent every month, they have an option of becoming owners one day. During that period, they can take a look into all the particularities about the property, both positive and negative. Sure, it plays a vital role in future decisions.

Bad Credit

The next important reason we would like to point out is the fact that buyers who don’t have good credit, can use this option for buying a house. Sure, it provides them with an exceptional possibility to avoid all the rigid standards imposed by financial institutions. During that time, they can work on improving their credit score, and avoid all problems when they buy the property.

Definite Purchase Price

We can see that the prices on the market are constantly moving. But that doesn’t mean that it will harm the property’s value. The price will neither rise nor drop. Naturally, the buyer will have the option of back out of the deal, but we can see that there is no too much reason for doing that.

Less Moving

Every person who’s experienced moving between homes knows how stressful this process can be. By opting for rent-to-own, the buyer will be able to live in a home that will come into its possession. That way, it offers the possibility of lowering down the number of moving. Without a doubt, it reduces the number of headaches you will experience.

In Conclusion

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So, now you are informed about all the most important aspects. But it needs to be said that this is a much wider topic. There are many other different aspects that you will need to look for many other details that provide more knowledge about this topic. If you would like to learn more about it, be sure to visit renttoownreviews.com/how-rent-to-own-works/.

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