The Essentials of Homes – Revisited

The Mechanics and Benefits of a Rent-to-Own Agreement

An alternative method of buying a home is a rent-to-own agreement, also known as a lease or lease-to-own agreement. Whenever a buyer enters such a contract, they agree to paying a rent for the specific property for a predetermined period of time prior to buying it on or before the lease’ expiration.

A rent-to-own agreement can be the best option for people who are interested in owning a home but have not been qualified for a mortgage, or those who are yet incapable of meeting the demands of being a homeowner. For example, you have a bad credit score but the factors that brought you to this position are now behind you, and you have been steadily working on getting your credit act together. Your debt-to-income ratio is perhaps too high (though not by much) and there’s sufficient space in your budget for making some extra payments, thus significantly lowering your debt in the next couple of years.

You may have a well-paying job, or landed one with a much higher salary, but you haven’t had it long enough for a lender to you think you have a stable source of income. Likewise, you may be successfully self-employed, but lenders think your track record is not enough to make them comfortable. Or you may have saved some money but it’s still enough to cover the typical down payment for a home, which is usually around 20% of the purchase price.

If any of the above applies to you, then your best option might be to enter a rent-to-own agreement. You can lock down a house that you like now while you improve your credit score, extend your employment or business background, add to your savings or do whatever other things that will increase your chances of getting a mortgage. And, in case the option money or percentage of the rent comes close to purchase price, you can start to build some equity at the same time.

For a rent-to-own agreement to be successful, potential buyers should be completely confident about their ability to purchase the property the moment the lease term expires. If you honestly think there’s more than a 50% chance that you will move out and not proceed with the sale, think twice. It’s highly improbable for an owner or landlord to agree to a refund of the rent credit and the option fee to give you that flexibility of moving.

If you see even the slimmest chance of you not qualifying for a mortgage or any other financing before the lease expires, you should probably just keep renting, fixing your credit, and saving up for a down payment. And when you’re all set and ready, you can select any house on the market that suits your taste and needs, and of course, your price range.

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