For those looking for a property, buying a rent to own home may be the best option. If you have been planning to purchase but you cannot afford one at the moment, you are not alone. Many people delay buying a house because they have insufficient funds for the down payment. Some have poor credit scores so they are not allowed to get a mortgage loan just yet.

If you are in any of the situations above, you may think you should wait a few more years to buy a home. Luckily, there are rent to own or lease option homes to the rescue.

What is Rent to Own?

The arrangement works just like any other transaction where the homeowner or seller and buyer are involved. The difference though is that the buyer agrees to lease the home for a specific period. Usually, it lasts anywhere from one to three years. Before you accept, make sure that you know the duration of the rental period.

At the end of that specified time, the potential buyer may be allowed to buy the house. In many cases though, the renter will be obligated to make the purchase.

The terms vary but if you want to purchase the house, you need to put up a fee. It is called option money, which secures your place as a buyer. The payment ranges from 2.5 to 7% of the entire price of the home, although it can be either less or more depending on the agreement.

As the renter who paid for the option money, you will have the right to purchase the house. However, you will not be forced or required to do so.

On the other hand, if you are the landlord or homeowner, you should agree that you cannot sell the house to other buyers during the agreed period. In some situations, the option money is refundable although most landlords keep it. Usually, however, the amount will be applied toward the purchase price.

Rent to own housing is beneficial in many ways. You are entitled to purchase the home that you are currently renting. Typically, the agreement is valid for a term equivalent to the term set for the lease based on the rental contract. For instance, if the agreement states that the lease term is for three years, the lease option gives you three years to purchase the house.

Before you sign the contract, make sure that it is actually a lease option. You should note confused with a lease purchase, which is often used interchangeably. The difference is that the lease option gives you the option to buy. On the other hand, the lease purchase is an obligation to purchase the house. If you back out, the seller is allowed to take the necessary legal action against you.

Benefits for the Buyer

Rent to own housing is worth looking into for quite a few reasons. If you are undecided, you may want to know the advantages of this option for you as the potential buyer. Here are the reasons why a lease option is a great opportunity for you:

1. You can find the perfect home for you and your family.
If you have been having a hard time saving up some money to purchase a property, but you can afford monthly or regular payments, buying a rent to own home can be helpful. The rent to own arrangement allows you to gather enough money or even repair your credit score. It is an excellent option for those who need some time to fix their financial issues.

Even though you are not the owner yet, you can rent the place. It gives you the ability to closely inspect the area and the whole house. You can then determine whether or not it is the property you should buy. 

2. You can relocate quickly.

Sometimes, a quick relocation may be necessary. For instance, you need to transfer for a job and you only have limited time. Lease option homes can be beneficial because paperwork is usually not necessary. You do not have to apply for a mortgage loan to get the deal.

3. You do not have to worry about getting a traditional mortgage.

Not everyone has an excellent credit rating. If you have had issues, such as previous foreclosures, debts, and others, you most probably have a low credit score. Therefore, applying for a mortgage may not be the best thing to do right now. You have the time to fix the problems while you rent. 

Even better, you have the chance to prove your creditworthiness. All you need to do is make timely payments for your rent, along with the additional percentage for the option money.

4. The price is fixed.

Right from the moment you signed the contract, you will already be provided with the price of the house. It should be fixed and final so you will not be concerned with price appreciation. The reason is that the purchase price will not change. The seller also cannot suddenly decide to increase the prices within the contract timeframe, which is indeed beneficial for you.

5. You have full control of the house.

When renting the property, you can act as if you own it. The moment you move in, you can gain control over it. If there are areas that you think require adjustments or improvements, you may be allowed to do so. Be sure to consult with the owner first so you know that you are not violating any terms.

6. There are no taxes involved.

As opposed to owning the house straight away, you do not have to pay property taxes while you are still renting. You have time to save money until you can afford to make all the necessary payments.

Benefits for the Owner

Meanwhile, if you are the owner of the house and you plan to sell it to the right buyer, you can also gain from the arrangement. Aside from the obvious fact that you will make money every month, rent to own also provides other benefits for you including:

• You can get a tenant who will stay for at least a year. The long-term tenant is more trustworthy than new ones. You already know the person and you can see whether or not your property will be cared for. 

• The risk is much lower with rent to own housing. You can set the option fee as nonrefundable, which is usually the case with this agreement. It reduces the risk in case the buyer is no longer interested in the house.

• You can still earn even if the real estate market is shaky. Allowing the potential buyer to rent and pay for the house at the same time can be profitable for you. If the market is lukewarm or not as lucrative, you will still earn from the sales and rent prices. Buyers are starting to build equity, which is useful for you. Additionally, you will not be required to pay a real estate commission, which is at least 3% of the purchase price.

• Tenants will not damage the property. The stakes are high and the renters know it can be their potential home. They will take care of it and even try to enhance the place. You get to save some money when it comes to these improvements. 

As you can see, lease option homes can be a win-win situation whether you are a buyer or a seller. Buying a rent to own is indeed a good investment, especially for first-time homebuyers.