Short Course on Houses – Covering The Basics

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. Maybe you a have high debt-to-income ratio, though not by much, and you can afford to make additional payments and bring down your debt considerably within the next two or three years.

You might have a job with a pretty good salary, or landed one with a bigger pay than your old job, but it’s only been a few months and your lender isn’t convinced that you have a stable income source. In the same way, you may be successfully self-employed, but your track record is not comfortable enough to lenders. 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 your situation resembles any of the above, then a rent-to-own agreement may just be your best bet. 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, should the option money or a portion of the rent approach the purchase price, you can also begin to build some equity.

A rent-to-own agreement works when potential buyers are absolutely sure about being able to buy the house upon the lease term’s expiration. 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 improbable that a landlord or owner will want to refund rent credit and the option fee so you can have the flexibility to move.

If you honestly believe there’s a chance for you not to get qualified for a mortgage or any other type of financing by the time the lease expires, you should continue renting with a typical lease, improving your credit, and saving money for a down payment. And when you’re ready, you can choose any home on the market that fits your taste, needs and price range.

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