The median home sales price in 2021 hit nearly $347,000. That’s a 16% increase from the year before.
It makes the dream of homeownership impossible for millions of people. Rather than get completely shut out of the housing market, there are creative ways to buy a home.
One purchase model that’s gained popularity in recent years is renting to own. It’s not a perfect model, but you can find a situation that works well for your situation.
Keep reading to learn about renting to own and what you should look for before signing a contract.
1. What Is Rent-to-Own?
What are rent-to-own deals? Renting to own contracts allow you to rent a home for a certain amount of time. There’s an option to purchase the home at the end of the lease.
There are upfront fees, which function like a non-refundable deposit. Once you get into an agreement, it’s difficult to back out.
2. It Applies to Land, Too
Rent to own doesn’t only apply to residential homes. It applies to any type of real property. That includes farms.
Farmers can use the lease period as a trial period. It also creates less debt because it lowers the upfront costs to start a new farm.
When it’s time to sell land, you’ll need to learn about selling land documents. That ensures you’ll have all of the required documents and reports.
3. Lease Option vs Lease Purchase
Rent-to-own contracts have two standard options. A lease option and purchase option don’t mean the same thing. Unfortunately, many people in real estate use them interchangeably.
A lease option contract gives you the option to purchase the home at the end of the lease. This gives you the right to back out if the property doesn’t work for you.
A lease purchase contract locks you into the purchase. You have to buy the home at the end of the lease.
This could become a major issue if your financial situation changes and you can’t secure a home loan.
4. Lock In the Purchase Price
Rent-to-own agreements either have the current purchase price of the home or one based on the future value of the home.
If you think the market will go up, lock in the purchase price at the current market value.
5. Who Pays for Repairs and Maintenance
When you rent a home, the owner of the property is responsible for repairs and maintenance. That may change in a rent-to-own contract.
Review the contract to make sure that remains the case. You don’t want to become responsible for a major repair on a property you may not own.
Renting to Own Can Work in Your Favor
Can you make a renting to own agreement work for you? Your sure can once you learn how these agreements work.
Renting to own makes buying a home easier, but it could cost you more money in the long run. You just learned the key points to negotiate in a rent-to-own contract.
For more modern financial tips, check out the other articles on the blog.