Rent to own homes are rentals that allow tenants to build savings to eventually buy a property at the end of a lease. They are often available for people who either don’t have access to mortgage options or have credit and financial problems that prevent them from qualifying for a traditional loan. Rent to own homes aren’t for everyone, though. In fact, according to the Federal Trade Commission, rent-to-own companies often have low conversion rates, which means that only a small percentage of people actually make it to homeownership at the end of a lease.
There are two main types of rent to own contracts: lease-option and lease-purchase agreements. A lease-option agreement gives tenants the option to purchase the home at the end of a lease while a lease-purchase agreement requires them to do so. Many of these contracts include a non-refundable option fee that can be paid upfront or in equal increments tied in with monthly rent payments. These fees typically represent up to 5% of the ultimate purchase price of the home and can be applied toward a down payment.
The other thing to consider is how the rent to own homes pittsburgh purchase price is established. Most rent to own companies use a predicted appreciation rate when setting a purchase price for a home. The problem is that the actual increase in value of a home could be faster or slower than expected, which would cause the purchase price to go up or down.
You should also be aware of what’s in the contract, including how the purchase price was determined and whether there’s a penalty for failing to buy the home at the end of the lease. How the purchase price is calculated impacts your ability to afford future rent payments and save for a down payment and can have long-term consequences. The contract should also detail if there’s a termination fee, what it is and how much.
In addition, rent-to-own properties are not ideal for those looking to move around a lot before making a permanent decision. There’s no guarantee that you’ll buy the home at the end of your lease, and if you do decide to purchase it, you’ll likely have to get preapproval for a mortgage. That’s a process that can take months, and if you don’t qualify, you’ll need to move.
If you’re thinking about renting to own, it’s best to work with reputable companies. Checking out a company’s reputation and doing background checks on the owner is critical. You should also find out if there are any outstanding liens on the property and how the company handles maintenance and repairs.
Before deciding to rent to own, it’s wise to do the necessary work to improve your credit and financial situation so you can have more opportunities to become a homeowner. That includes building a strong credit history and paying down existing debt aggressively. These steps can help you build your financial stability and put you in a better position to qualify for a mortgage when it’s time to buy.