WHAT EXACTLY IS RENTING-TO-OWN?
Renting-to-own, also known as lease-to-own or rent-to-own, is a type of contract in which the buyer is allowed to use a product (such as furniture, electronics, or appliances) while slowly paying off the cost of the product. Typically, rent is paid on a monthly basis and is supplemented by extra payments that go toward ownership.
While there are many different variations and models for how renting-to-own works, generally speaking this process allows buyers to use products before they fully commit to purchasing them. In other words, buying something through a renting-to-own agreement means that you can enjoy the benefits and features of your chosen product without having to make an upfront investment all at once.
Whether you’re looking for an easy way to furnish your home or want to try out some new gadgets before investing in them outright, renting-to-own might be the perfect solution for you.
THERE ARE BOTH PROS & CONS TO CONSIDER WITH A RENT-TO-OWN AGREEMENT. LET US TAKE A CLOSER LOOK AT EACH
The Pros of Renting to Own
There are a few advantages to entering into a rent-to-own agreement.
- For starters, it can provide an opportunity for those who may not otherwise be able to qualify for a mortgage to get their foot in the door of homeownership. The buyer may also have time to improve their credit score or save up for a down payment during the lease period.
- Another plus is that the buyer typically has the opportunity to move into the home right away, rather than having to wait until they are approved for a mortgage and close on the property.
- Lastly, with a traditional rental agreement, the landlord can raise the rent or sell the property at any time. With a rent-to-own agreement, the price of the home is locked in for the duration of the lease agreement.
The Cons of Renting to Own
Before signing on the dotted line, it’s important to be aware of some of the potential drawbacks of renting-to-own.
- For one thing, if you decide not to purchase the home at the end of your lease agreement, you will likely forfeit any money you have paid toward Principal, Interest, Taxes, and Insurance (PITI). In some cases, you may also lose any money you have paid toward repairs or renovations on the property.
- Another downside is that if the value of the home decreases during your lease period, you will still be responsible for paying the agreed-upon price when your lease expires. Lastly, if you default on your payments or violate any other terms of your lease agreement, you could be evicted from the property with little notice or recourse.
SUMMARY
Renting-to-own can be a great option for those who want to buy a home but don’t currently qualify for a mortgage loan. There are potential risks involved—such as forfeiting all money paid toward PITI if you decide not to purchase at the end of your lease period—but there are also potential rewards, like having an opportunity to lock in today’s price on a home that might appreciate over time. If you’re considering entering into a rent-to-own agreement, be sure that you understand all terms and conditions before signing anything.
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