With housing becoming less and less affordable every year, first time homebuyers are constantly seeking out alternative paths to home ownership. One of the burgeoning ways to do so is the ‘rent-to-own’ scheme. So how exactly does the scheme work? Your Menifee, CA real estate professional share the following information with you so you may know if rent-to-own is a home ownership avenue you might consider taking.
What is rent-to-own?
A rent-to-own scheme is basically a leasing arrangement wherein a prospective buyer pays monthly rent to the owner with a percentage of the payment allocated for a home purchase later. The arrangement usually lasts two to five years, after which the renter can decide to continue with the purchase of the property based on the price agreed upon by both parties early in the transaction.
Why should you buy into it?
Many homebuyers are opting into a rent-to-own agreement because it does away with the need to save for a deposit, which is increasingly becoming out of reach for many potential buyers because of the constantly rising real estate prices. Since a down payment is not needed to move into the house, renters gain the opportunity to save for a down payment and boost their credit record in case it needs improving.
Renters are also able to “test” the neighborhood for a lengthy period, which can give them a better idea if they indeed want to move there. What’s more, since the sales price and terms are settled early, the renter gets the chance to purchase the property at below-market price in the future.
What are the risks?
As mentioned, some—not all—of your monthly payment goes toward the down payment. Plus, it will be the mortgage lender and not you who decides how much of your rental payments go toward the down payment and closing costs. Should you opt not to buy the house at the end of the lease agreement, you probably won’t get a refund on the down payment you’ve already put in.
Rent-to-own schemes are not for everyone, but it could be for you. To know if the scheme suits your personal situation, consult a Menifee real estate professional.