In today’s market, home buyers have various avenues towards making the purchase. Typically, when a potential buyer is interested in purchasing a home, they will first inquire with their bank about a mortgage payment. From this point, the homeowner is able to place a down payment on a home and fully purchase it with the help of their bank. Homeowners also have the option to sign a rent-to-own agreement, which typically allows buyers more flexibility with purchasing a home than the usual buying process.
Rent-to-own properties come with many benefits. For people that are interested in buying a new home, it may be difficult to receive an approval from banks for a mortgage. In many cases, this is because the potential homeowners have a lower credit score than banks are willing to provide a mortgage to. Because of this, many potential owners seek alternative measures for the purchase of a home. Renting-to-own is a great alternative in the event that a potential buyer will not be able to obtain a mortgage.
When new owners rent-to-own, this means that they are making partial payments toward the purchase of a home. This process usually lasts at least one year. During this time, the interested homeowners, now considered renters, make rental payments for the home to the home’s current owners. Typically a portion of this rental payment is the payment used to go toward payment of the home. All of this information should be spelled out in the rent-to-own contract or agreement. If a renter is obligated to purchase the home by contract, they will also provide the current homeowners with a one-time purchase payment to go toward the official purchase of the home as a type of down payment.
Throughout this process, it is important for renters to be aware of their contractual obligations for any payments regarding the home. Within the rent-to-own contract should also be information regarding the renters obligations for property taxes, Homeowner’s Association fees, and insurance. At the end of this process, renters that are obligated to buy by contract are expected to apply for a mortgage to finance the home and move on to purchasing. Because of this, it is important for renters living in rent-to-own properties to continue to establish good credit so that they can be approved.
See our post on: Rent Or Buy – The Pros And Cons Of Each