A rent-to-own arrangement allows you to rent a house with an option of buying it at a specified future date. The applicable rent is usually slightly higher than normal, with a portion of the rent going towards the property purchase. Here are some of the advantages of this arrangement:
Allows You to Buy With Bad Credit
Credit scores are more crucial in house purchase decisions than rental decisions. When you purchase a property, the mortgage lender needs a strong reassurance on your ability to repay the loan because they stand to lose a lot if you default. A landlord will also lose money if you default on rent, but not as much as a mortgage lender would lose.
For this reason, the rent-to-own option is attractive for those who have low credit scores but are working on improving them. Hopefully, your scores will be high enough to afford a mortgage by the time you are ready to buy the house you have been renting.
Allows You to Lock the Purchase Price
When you buy a home via this method, you agree on the purchase price from the beginning. This means you won't have to shelve additional money if property prices rise in an area. This makes rent to own a good option for home purchase in promising neighborhoods that still have moderate home prices. Of course, the downside is that you will still pay the same price if property prices fall, so you need to do your research well before signing a rent-to-own agreement.
It Allows You to Test Drive the Locale
Once you sign the contract to buy a home, there is nothing you can do even if it turns out that the neighborhood isn't as great as you imagined it. You can't go back to the lender or seller and demand your money back or cancel the purchase. Your only way out would be to rent out the house or sell it and move to another area.
However, with a rent-to-own agreement, you don't have to worry much about getting tied up in an undesirable neighborhood. The rental period will allow you to confirm whether the neighborhood is as great as you thought it to be and whether you really want to continue living in the area. If you change your mind before the rental period is over, you can easily rescind your decision to buy the house. Of course, you may still lose some money, but it isn't likely to be as much as you would have lost if you had bought the house outright.
To learn more about renting to own, contact a real estate agent.