There are plenty of household items you can rent to own, including washers and dryers and furniture. But did you know you can also rent to own homes? This may sound like a viable option. After all, who wouldn’t want to try a home before buying it from Phoenix realtors? This could save you from a nosey neighbor, less-than-stellar school districts, and other bad things you wish to avoid before closing on a home. While this option may seem like a good idea, some things about rent-to-own homes may not be so great. Here is how rent-to-own homes work and seven reasons to be cautious about acquiring a home this way.
How Rent-to-Own Homes Work
A rent-to-own home can work in two ways. One is leasing the house with the option to buy. When you reach the end of your lease, you can buy the home you’re currently renting. If you decide to buy, you can apply payments you’ve made toward the down payment. On the other hand, if you choose not to buy, your payments will serve as rental payments.
Another option is a lease purchase. This is when you become part owner of the home, and your name is added to the deed. So you have a vested interest in the house and must buy the home at the end of the term. As you rent, working with a lender to secure funds is in your best interest. It is also a good idea to save additional funds towards closing costs or increase your down payment amount.
Seven Reasons Why This Arrangement May Not Work
Both options involve some level of risk, but at first glance, they don’t seem like bad alternative options to obtain a house. However, here are some things you should consider before you get too excited about rent to own houses.
You’re Susceptible to Scams
In a perfect world, your landlord will do the right thing, and you will own the home at the end of the term. However, this linear scenario isn’t always the likely outcome. Unfortunately, some shady landlords may pocket the extra money you provide for a down payment, and there isn’t any protection against such scammy behavior.
Changing Your Mind Could Cost You
When getting into a rent-to-own situation, you will have to make sure you consider this decision. The money you put into either rent-to-own option is not something you can get back if you decide to back out of the deal. So it’s best to know what you want to do once the home’s lease expires.
Repairs Are Your Responsibility
When you’re in a rent-to-own agreement with the homeowner, you’re just as much a homeowner as they are. So, when something breaks down, or the home needs improvements, you’re likely responsible for fixing it instead of the homeowner.
It Could Be Difficult to Save for a Down Payment
In some rent-to-own contracts, a portion of the money you pay monthly will go toward the down payment on a home. So, it could take a very long time until you get a substantial amount saved for a significant down payment. You may have to stay in the rental property for several years to come anywhere close to getting enough money saved.
Late Payments Can Jeopardize the Deal
When renting a property, a late payment could result in late fees. However, in a rent-to-own contract, a late payment could mean you may lose the deal entirely. Make sure you know the rules when it comes to late payments.
You Could Lose the House If the Owner’s Finances Are Bad
The thrill of owning a home after you rent it may be alluring. However, if your landlord is not good with keeping up with payments on the house, you could lose it, no matter how much money you’re putting towards it.
You May Have Trouble Getting Financing
Another major problem that could arise once you reach the end of the lease is that you may not get the financing you need for the house. A lender could decide that the home isn’t in good enough condition to provide you with the funds. So all your efforts to put money into the house could be in vain. Rent-to-own houses have their advantages and disadvantages. As long as you set the deal up with a trustworthy homeowner, you probably won’t have much trouble getting a home using this pathway to ownership. However, knowing the risks that could arise in such a deal is a good idea.
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