Over the past few years, Rent to Buy homes, sometimes known as rent to own homes have become incredibly popular when it comes to real estate transactions. On this page we are going to take a little look at just what the process is all about and then perhaps more importantly for you, the benefits of looking into a rent to own home as well as a few of the pitfalls.
Firstly, let’s cover a little bit about what a rent to own transaction is all about. Basically this option is suitable for those that cannot obtain a mortgage at this current moment in time. Basically you will be ‘leasing’ a property. It is almost like renting it, but you will be paying slightly more. The extra bit of money that you pay will be offset against the price of the property. At the end of the lease you will have the option of purchasing the property. These leases tend to last around three years. The property owner can choose to renew this lease or not.
The upside of a rent to own lease is the fact that you don’t need to worry about obtaining a mortgage. You can start to own the property straight away. Of course, if you can obtain a mortgage then you should certainly go down that route because the monthly cost of a rent to own property is going to be considerably higher than if you went down the mortgage route. This method is pretty much the exclusive domain for those that cannot obtain a mortgage at that current moment in time. Most of the time this is down to the fact that they have a poor credit history. This method is particularly popular amongst first time buyers.
As you can probably guess, there are a couple of downsides. Firstly, you are going to be tied into a monthly contract. You will not be able to leave the property during the length of your least, and thus it is completely different to renting. In addition to that you will be paying slightly more than if you had opted for mortgage or rental property. If you are unable to afford the lease fee for a couple of months then you will have broken the contract. You will have lost all of your money in this case and you will not be able to recoup it. Basically you want to make sure that you have the budget in place before you commit to a lease. You will also need to bear in mind that you may not get your money back if you are unable to be approved for a mortgage at the end of the lease. However, because you own equity in the property your chances of being disapproved for a mortgage are considerably smaller than if you had applied for a mortgage without a single asset to your name. Remember, there is always a chance that you can sell your part of the property back to the majority owner.
