The pros and cons of rent to own
Many families are anxious to stop renting, but not quite ready to purchase, and have had thoughts of whether rent to own is a good stepping stone to reach their end goal. The main reason most tenants/buyers consider this option of purchasing vs. traditional methods is usually for one of the following three reasons:
- Poor current credit history,
- Not enough job history or verifiable income, or
- Too much existing open credit causing debt-to-income ratio to be off the charts.
All these reasons are valid and could hinder pre-approval to purchase a home in the Wilmington, North Carolina area. Families should know that, in most cases, the seller/landlord will require a sizable down payment at the time you enter into the agreement. Most landlords/sellers will charge you more on a monthly basis than a regular rental amount and agree to apply a portion of that payment toward your purchase. The purchase price of the home is negotiated at the beginning, so, if you’re doing an agreement in the peak market and the market declines, it could cause some problems. The lease/purchase agreement will require you to exercise your right to purchase by a specific ‘end date.’ If you fail to exercise your right to purchase by that ‘end date,’ all monies paid upfront and set aside toward the purchase price could be forever forfeited and lost to the tenant/buyer. Most agreements will also say that the tenant/buyer is responsible for all repairs and maintenance of the home. With so much at stake, it is very important for the tenant/buyer to know that they can turn things around within the allotted timeframe to get a mortgage. One thing 2020 taught all of us is that life can take a sharp turn in the road with no notice.
Are there any benefits to doing a rent to own? Possibly. Let’s look at a few benefits for the tenant/buyer. One benefit would be that you’re already in a home that you love and know everything about it. You’ve negotiated the sales price at the beginning and if the market continues an upswing, the home will gain equity and the rewards of that go to the buyer. Buyer/tenant also increases their down payment toward purchase each month, which could result in a lower mortgage amount.
So, as you can see, there are several things that could be a pro or on for rent to own agreements. However, there are always unknowns and unforeseen, unexpected turns of events that could also happen. What if a loss of job/ income happens? What if the seller doesn’t keep hazard insurance on the home and an incident occurs that would have been covered? What if the seller took your monthly rent and did not pay his mortgage and here comes a pre-foreclosure notice on the door? What if the seller dies and that was not addressed in the agreement? What if there’s an unexpected county rezoning plan for that area or a D.O.T road project pops up? What if the school district map changes and you wanted this home just because of that? What if, what if, WHAT IF? It is for these reasons that, at Get That Deed, we advocate for family’s to either A) rent or B) buy. It is in the in-between that things can get very muddy. Reach out to us for your family’s personalized game plan to move from point A to B within the next 18 months or less and achieve home ownership. Contact us today to receive your action plan and go “Get That Deed” that your family deserves with less stress and fewer surprises.