Rent to Own a House – What to Watch Out For

With the recent problems in the credit industry, money’s a bit tight. It can be a bit more difficult to scrape together the requisite down payment that many lenders are after, now that most of the private zero down and creative mortgages have gone the way of the dodo. Rent to own can be a way for some of you to get into a house or condo without throwing away all your hard earned cash on rent. Like anything else, rent to own houses can be a great deal (depending on your situation) or they can spell doom. The devil is in the details.

How these rent to own, also called lease to own plans typically work is that you pay rent plus a small additional surcharge that goes toward your future down payment. You’ll usually pay an option fee for the privilege of participating in the whole shebang. In most cases you’re actually not renting to own, but renting with an option to buy. You will have to exercise the purchase option by the expiration of the option period.

What to Watch Out For in a Rent to Own House 1 – Contract stipulations - As with any other legal arrangement or real estate purchase, look over the contract very carefully. It should stipulate the price of the house, the length of the option period, the option fee, the rent payments, and the rent premium the potential buyer has to pay. In addition as a buyer you should be very aware of any other stipulations and clauses that could have you out in the street. In most rent to own housing arrangements, you will forfeit the fees and premiums if you are evicted, fail to make payments or decide not to exercise your rent-to-own option. Make sure the former isn’t too easy. 

What to Watch Out For in a Rent to Own House 2 – Fairness - Make sure that the rental contract isn’t too one sided. In a few instances, sellers know they have a buyer with few options due to poor credit and/or few available funds. They can use the buyer’s desire to own a home, coupled with their relative lack of ability to do so, to put them into a one side contract. Don’t let that happen to you.

What to Watch Out For in a Rent to Own House 3 – Home Price. Make sure that the premium you pay isn’t too high. One of the goals is to be able to exercise your purchase option. You’ll have a much better chance of doing so if the house appreciated by the end of the option period. Similar purchase options on stocks, purchase options on homes state that you can purchase the house for an agreed upon price at some point in the future. You are gaining equity in the house as it appreciates above your option price. The goal is to accumulate sufficient equity such that securing financing is relatively easy, even with bad credit. Obviously the lower the home’s price, the greater you’ll benefit from appreciation.

What to Watch Out For in a Rent to Own House 4– The Real Estate market - In many areas home values are down. The question is how long they will stay depressed. If values stay low throughout your option period, you may not have enough equity in the home to purchase it. Evaluate the market in your area thoroughly before committing to such an agreement.

What to Watch Out For in a Rent to Own House 5 – Problems and repairs. Another section of the contract should determine who is responsible for any needed repairs to the property. It should state which party pays for different types of repairs. You don’t want to get stuck paying for a new roof, for instance, only to either decide not to exercise your option or be forced to leave.

The bottom line is that rent to own can be a great strategy to purchase a home, if you have few other options. It beats losing money on rent and can also be a great way to try out a neighbourhood or home before you buy it. Just watch out for those details that can make your life a bit rough.

For more information on other useful strategies of home ownership visit www.easyhouses.com.au  or to find the best data base of homes suitable for RTO strategy go to www.hot-properties.com.au