What is a Rent-to-own Property?
Properties can be purchased, if you have the cash to do it. The reality is, very few people have the purchasing power to buy something outright. Those who do not have that power, have to turn to a bank to get a mortgage or loan. In order to be approved for either, you have to have spotless financials, including a solid job which can pay for your eventual debt.
A lot of people do not have the luxury (if you could call it that) of getting even a mortgage, let alone a loan. People have the option of using the rent to own homes, then eventually purchasing them if they feel like it, though it also depends on the contract. Here is what you need to know about a rent to own property.
Rent to Own – Different from Purchasing
When talking about a rent to own property, you need to have in mind that depending on the contract you sign, you must rent a property either way, but later on, you will have the option of purchasing it or going your own way. You will be able to purchase the property for a better price, of course, given that you will have been renting it for a while prior to the purchase.
Types of Rent to Own Contracts
There are two kinds or rent to own contracts and each of those can have consequences depending on your financials and whether you sign one or another. The two types are Lease-Option and Lease-Purchase. What they require of you is to rent the property for a certain time and then you can either have the option of purchasing it or you must purchase it. Here is how each of them works.
This is the more rigorous of the two and leaves little room for interpretation. Given that upon signing the contract, you will eventually have to purchase it, you will get a better deal. Things can change during the time you are renting a property, from the property itself to your opinion of it. This is a bad idea if you are not absolutely sure you want something, but are able to purchase it at a later time.
This type of contract is great if you do not want to purchase the property at a later time, or more specifically, if you think that you might change your mind in the long run. It is also a type of contract which will have a worse price than the other one, when it comes to the actual purchasing part. It leaves you with room to move and breathe, which is more important to some people, especially if their financials might not be up to speed even after the period of rent expires.
Other than these things, there is a nonrefundable fee which you have to pay the seller at the start, which is often called the option fee. It ranges anywhere from 2% to 10% of the actual price.
These are the things you need to know about rent to own properties.