If you are in the market looking for a home, you must have already realized that it is a lengthy and complicated process. You must have a good credit score to obtain a mortgage and arrange for enough money to make a down payment. These two are probably the biggest challenges for prospective home buyers.
Many people, particularly first time home buyers, find themselves unable to buy a home simply because they don’t have a good credit rating, required for a mortgage application to be approved by a lender. It could be due to lack of any credit history (for example you may have not taken out any kind of a loan in the past) or a bad credit history in case you have a history of missing loan payments. For this reason, most renters give up their home ownership dream and continue to live as tenants.
There is, however, a great solution to their problem. The trend of ‘rent-to-own’ properties is fast catching up in Utah. You can rent a home and buy the same property at a later date. Sounds interesting, right?
What is a Rent to Own Agreement?
Under the ‘rent-to-own’ agreement, you draw up a contact with the home seller in which you agree to make a monthly payment. It includes the rent for the property, plus a small amount of money that goes towards the home purchase at a later date. The contract specifies the deadline by which you need to buy the home. Before the contract expires, you and the seller need to go through the conventional home transaction process.
If you back out and the contract expires, you forfeit the money that you paid towards the home purchase. The agreement period can be customized based on your negotiation with the seller. It is usually two-five years.
Four Advantages of Rent-to-Own Homes
It is not without reason that ‘rent-to-own’ properties are getting extremely popular in the country. Many renters are opting for this option due to its flexible terms. Here are a few notable advantages of buying a ‘rent-to-own’ home:
No credit score and down payment requirements
Most young buyers are unable to buy a home as they need a high credit rating to obtain a mortgage. Under the rent-to-own agreement, you won’t immediately requite a mortgage, so you can stop worrying about your credit rating.
One of the biggest hurdles before home buyers is to arrange for down payment which is 20% of the property price if you don’t want to pay mortgage insurance. It is usually a huge amount of money for most people planning to buy a home. When you buy a ‘rent-to-own’ home, you don’t need to make any down payment. Until your rent-to-own agreement is in effect, you can continue to build your credit score and obtain mortgage when it is time to buy the home.
You are immune from upward or downward trends in property prices
When you buy a rent-to-own property, you know the purchase price from the beginning because it is clearly specified in the agreement. If the real estate market crashes resulting in property prices plummeting, you can even back out at the end of the contract period. You will only lose a small amount of money that you paid towards the home purchase. If property prices skyrocket, you will build equity even if you live as a tenant for a few years.
Know the property and neighborhood before you commit
Since you will live in the property for several months before buying it, you can identify any problems with regard to the condition and neighborhood. Only a rent to own agreement gives you the flexibility to back out if you don’t find the property and neighborhood desirable.
You don’t have to move
If you have been a tenant for long, you probably already know that having to move a lot is the biggest nightmare. In a rent-to-own agreement, you are technically a tenant for a few years, but if you buy the same home, you don’t need to move out.
These are some of the advantages of committing to a ‘rent-to-own’ agreement. If you are living in a rental and want to be a homeowner despite financial limitations, you can explore this option.