You have spotted the house of your dreams, and it is on the market but you cannot afford to buy it at the moment. Perhaps you do not have enough down payment funds, or your credit score is not good enough to get a mortgage loan. Don't give up yet. You have one other possibility to consider a rent-to-own contract.
In a rent-to-own arrangement, the potential buyer agrees to rent the home for a given period (typically 1-3 years). At the end of the rental period, the renter will either have the option to buy the house or be obligated to do so, depending on the terms of the agreement.
To retain the option to buy the house, a renter puts up a payment (option money) which can range anywhere from 2.5%-7% of the sale price of the home. This gives the renter the right to buy, but not the obligation to do so. Meanwhile, the current homeowner/landlord agrees not to sell to any other potential buyers during this time. Option money may be refundable (usually not) or partially applied toward the eventual purchase price (usually so).
Why would you want to rent-to-own? Here are a few potential reasons.
Unfortunately, there are also some downsides to consider.
In essence, there is no point in renting-to-own a house if you do not reasonably expect to buy it.
Before executing a rent-to-own agreement, have a real estate lawyer look over the terms before you buy. Clarify any ambiguities on expected maintenance and upkeep, payment terms and conditions, and expectations and obligations at the end of the term.
Rent-to-own housing arrangements work well for some people, but they are not for everybody. Consider whether a straight rental is better while you save money for a future home purchase, and before you decide that a rent-to-own is best for you, make sure that you fully understand all of your obligations and options.
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