With the mortgage requirements becoming ever tighter, many prospect home buyers look into the opportunity of securing a rent-to-buy home deal also known as lease option.
It enables you to start building equity in a house while paying rent and to buy it at a later date.
It is typically recommended to people who do not have sufficient savings for a deposit and for those with credit issues.
Weigh the benefits and risks associated with this opportunity to decide if it will be right for you.
How It Works With a rent-to-buy home deal, you deal directly with the seller and there is no bank involved.
You sign an agreement which enables you to purchase the house within a set period of time, typically between 3 and 5 years.
The purchase price is fixed in advance.
During the term of the agreement, you will have to pay rent, usually on a weekly basis.
Every time a portion of your payment will be allocated to a separate account allowing you to build equity in the property.
You will be able to use the saved money for paying the deposit when you take out a mortgage loan to buy the property.
The Pros and Cons The main benefit of a rent-to-buy home deal is that you make a major step towards homeownership without involving a lender and without worrying about things such as bad credit, self-employment and insufficient savings.
You will get to move into your own place and buy it eventually.
The price is set in advance so you know exactly how much you will have to pay.
If the market improves, which is the normal trend, you may be able to generate considerable savings.
The other major benefit is the flexibility which you will have.
Since you deal directly with the seller, you can negotiate the rent and the sales price.
You can make arrangements which will protect you in case you have difficulties with paying the rent on time and in full.
You will have plenty of time for preparing to take out a mortgage loan while having a property secured.
The savings which you will make for paying the deposit will help you build a better credit record as well.
You will be able to get stable employment as well.
The main risk comes from the fact that if you choose to opt out of the deal, you will most likely lose the money which you have saved for the deposit.
Additionally, there is the risk of the seller increasing the rental payment too much, but this kind of risk can be offset in the agreement.
Decide carefully if a rent-to-buy home deal will be right for you.