The Pros and Cons of Renting to Own

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When considering housing and investment options, people often wonder whether it’s better to rent or own. But there’s a third option you might consider: rent to own. This process, also called lease to purchase, might seem a little intimidating at first. But with a little research, you can find out if it’s the right call for you.

How Does Rent to Own Work?

Basically, rent to own agreements allow a portion of your monthly rent to be applied toward a future home purchase. You pay your monthly amount to live in the house just as you would with a normal rental, and within two to five years (about three, normally), you have the option to purchase the home through a traditional buying process. Generally, the monthly payments are above market rates, and the difference between market rate and the monthly payments is credited toward a down payment.

Why Rent to Own?

Why rent to own, rather than just saving up for a down payment and buying a house? There are many benefits of renting to own, but the biggest is that it allows you to build up your credit if you wouldn’t be eligible for a home loan at present. It may also help you to save if you have trouble setting aside money on your own. And since it’s not set in stone, you can try out the home and the neighborhood to see if it’s a good fit. Rent to own homes are often homes that the owners are having trouble selling, so they may be motivated to give you a good deal. And if you agree on a certain purchase price in advance and home values continue to rise, you’ll be getting a nice return on your investment right off the bat.

What Are the Downsides?

The downside of renting to own is that if you decide not to buy the house, the home buying credit you’ve been accumulating each month with above-market rental payments will probably be completely lost to you; you won’t be refunded that amount. So it’s best to go in with the mindset that you’ll definitely be buying the house — only opting out if absolutely necessary.

Do you think the reasons you should rent to own outweigh the potential downsides? Why would renting to own would make sense in your situation? Share your thoughts in the comments.

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