How Does Rent to Own Work?
If you would like to own a home but are not able to get a home loan, then you will want to read this article. Specifically, we will be discussing how it works when you rent to own a home and the key benefits that you will enjoy. After reading this article, you should be able to decide if renting to own is right for you.
When you get a rent to own home, you are renting the home for a preset period of time and then you have the option to purchase the home at the end of the rental period. Unlike a lease purchase agreement, you are not required to purchase the home. On the other hand, the current home owner must sell it to you with the terms specified in your original contract. They cannot sell the home to anyone else until your option expires.
You will make a monthly payment to your landlord in the same way you would if you were renting. The primary difference is that each month a portion of your payment will begin accruing as a rent credit. If you decide to exercise your option, your accrued rent credit will go against the purchase price of the home. When you do go to get a home loan, many lenders will treat the transaction as if it were a refinance. This, combined with your rent credit and equity build up, very often means that no additional down payment will be required when it comes time to get a mortgage.
One of the key benefits of renting to own is that should the home appreciate during your rental period, you are able to benefit from this appreciation. If your contract allows it, you can even sell the home to someone else for the new fair market value, pay the original owner the amount that was agreed upon and pocket the difference.