If you’re looking for a way to enter the real estate market and considering a rent-to-own home, then you should be aware that renting-to-own is extremely risky and super expensive.
First-Time Buyers - It’s Not As Beneficial As You Think!
It’s not uncommon for first-time buyers who have limited options to consider rent-to-own or leasing options for their first-time purchase. Although it might sound like this type of deal is easy and possibly the only option for you, proceed with caution.
Even as a tenant who is renting from a homeowner, with the option to purchase the home at the end of your lease, there isn’t as much benefit for you as there is for the homeowner. It’s not mutually beneficial as they may lead you to believe even though you can build your credit while saving for your down payment
You’ll Take on All The Risk
At the end of the day, there is little risk for the homeowner and they might charge you more than the home is actually worth. Your rent will be higher than usual since a part of your monthly payment will go towards your down payment. As the tenant you’ll also need to pay a deposit to the homeowner, which will be help as a credit towards the property price.
For instance, let’s say the selling price is $200,000 and the monthly rent is $1,000 a month. Once you pay the 5% deposit of $10,000, you’ll still be looking at about $1300 per month in rent. The additional $300 will go towards your down payment. Therefore, you’d need to lease for three years to save $10,800. If you all your initial deposit to this number you’ll have a total of $20,800 at the end of the three years. Although this may sound attractive if you can afford to buy a rent-to-own home, it’s simply not the best way to go about it.
If you already tried to get a bank mortgage, but the bank said no because your credit score and employment history didn’t meet their criteria to qualify this will not help you qualify after your three-year lease. To top it off, if you break the rent or lease-to-own agreement or change your mind about the home, your deposit will be at risk. You can potentially lose some or all the money you paid on your down payment too.
In some cases, your agreement could be voided out if your rent payments are late. The end result would be the same, you could lose everything.
Consider Other Options
Instead of going the rent-to-own route, it would be better to wait until you can qualify for a traditional bank mortgage or speak to a mortgage broker to see what private lenders have to offer you. It’s the best way to maintain control of your money and finances.
Still Convinced Rent-to-Own Is The Best Option For You?
If you’re still not convinced and still decide rent-to-own is the way to go, be sure to hire a lawyer who has experience with these types of agreements. They’ll be able to explain the advantages and disadvantage clearly before you sign any documents.
One simple mistake during this process can cost your thousands, much more than a $500 lawyer fee. Avoid any risks that come along with rent-to-own home ownership by understanding exactly how it works and what’s involved.
Life can be uncertain, and what stuff happens it can affect your ability to meet your payment responsibilities. Don’t be devastated by your choices, be prepared.
To learn more about the downfalls of rent-to-own vs private mortgage loans, speak to a broker at AKAL Mortgages.
When we say Yes! We stand behind our promise.