When Should You Opt For Rent-To-Own Homes?

Rent-to-own homes are typically an ideal option for those who have been turned down for a traditional home mortgage. Many mortgage lenders require a minimum credit score of 620 to even consider your loan application. They will also require a stable income level and a low debt-to-income ratio. There are multiple reasons you may not fall into these standards.

Those individuals who have had bad financial management in the past, but are working toward rebuilding their credit tend to have a hard time getting approved for mortgage loans. Those who recently switched jobs or have gone down the self-employment route in the last one to two years don't provide enough stability for these lenders. Lastly, those who have a high debt-to-income ratio will signal to the mortgage lenders they are a higher risk for defaulting.

If you are not approved for a mortgage loan, rent-to-own is the best option for you. This allows you to move into a property that you like and work towards owning it. Over the first period of the lease, you will be given that extra time to prove a stable income, rebuild your credit score, increase your savings, and lower your existing debt.

Before you get into this type of agreement it's important to consider a few things. You need to make sure you will be ready to buy the house after the initial lease period ends. If you can't find a home you like or aren't yet sure if you really want to be a homeowner then you should avoid a rent-to-own property. When you are in this type of agreement you pay what is called “an option”, which is a percentage of the purchase price to ensure the option to buy the property in a set amount of years. If you decide at the end of your contract you don't want to buy the home, you forfeit that money.

Advantages Of Rent-To-Own Contracts

Drawing up a contract from the existing homeowner's perspective is a necessity. Those who have been trying to sell a home on the market with no luck can greatly benefit from a rent-to-own option. This will allow them to get a monthly income to cover the cost of the mortgage payment while securing a future selling price for the home. This makes a great solution as the renter will have a stake in the home as they cover the costs of the buying option, so you won't have to worry about potential damage to the house.

Rent-to-own contracts are ideal for buyers who haven't saved enough money for a down payment and those who wish to wait to apply for a home loan. The renter isn't responsible for insurances or taxes on the property during the period they are renting. One major advantage of this type of lease is the renter will have a clear idea of what the selling price of the house will be at the end of the lease. This makes it much easier to save money for a down-payment and adjust their budget to meet the demand.

Disadvantages Of Rent-To-Own Contracts

This type of deal is fairly new to the housing industry and there isn't much regulation yet. This allows for contracts to be drawn up with many different requirements. The current homeowner can put many clauses in the lease that will void out the selling of the house in the future. For example, they can include a clause that any late payment will void the sale price for the renter and the renter will forfeit the option fee they paid at the beginning.

It's important as a renter to have a lawyer read over your contract and help you understand everything in it. Some homeowners have been using rent-to-own contracts as a way to get a sizeable chunk of money, from the buying option, and then use the clauses to void out the contract. Be careful not to be taken advantage of by these knowledgeable homeowners. Rent-to-own contracts are not legal in some states throughout the United States. It's important to check with your real estate agent or lawyer to determine if a rent-to-own is possible in your state.

Choosing to live in a rent-to-own property can be ideal for some individuals, but can be a bad option for others. It's a good idea to take a look at your financial situation before deciding if this is the right option for you.

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