Renting to own could be beneficial because you get to live in the home while paying for your house at the same. On the other hand, there are also some pitfalls of renting to own that you may not be aware of.
It’s wise to research this option thoroughly before you get into it. Here are some advantages and disadvantages.
What Exactly is A Rent to Own Mortgage?
Let’s start with the definition of a rent to own mortgage. A rent to own mortgage is when you sign a contract that is based on the possibility of owning the home at some point in the future. It will be up to you in the end if you want to own the property after making payments over a period of years. With a rent to own mortgage it’s possible to own a home even if your credit is not the best.
The seller benefits by having the ability to earn income on his property. Scams also abound with rent to own mortgages, so you should research each offer carefully and talk with both your realtor and a real estate lawyer during the process.
You Lose What You Invested if You Don’t Buy The Home
A disadvantage of a rent to own mortgage is that you lose the money you invested should you decide not to own the home. This is why you should decide if this kind of mortgage is right for you before making a commitment.
You also lose the money you invested if the landlord runs into financial troubles and faces foreclosure on the property.
Sellers Face Some Disadvantages
Sellers of rent to own mortgage properties have to sometimes deal with tenants who fail to make payments or who back out their contracts. As a result, the sellers will need to start the process all over again; this creates extra stress for the seller.
Sellers also don’t get their payments in a lump sum, and this hinders their ability to buy a new home.
Rent to Own Mortgages Rebuild Your Credit
If your credit is not good enough for a traditional mortgage, a rent to own mortgage can help you rebuild your credit.
When you make timely payments each month, it goes on your credit report. Over a period of years, your credit score will have increased.
When your credit improves, you can qualify for other types of loans such as business or student loans.
Sellers Can Request High Rent Prices
In a rent to own mortgage, the seller can charge a high rent price if he chooses. This is because the seller knows that there is an increasing demand for this kind of home financing from buyers who don’t qualify for traditional mortgages. As a result, the seller will have a steady second income each month.
In conclusion, rent to own mortgages offer both advantages and disadvantages to buyers and sellers. Take time to assess your financial situation before you sign this kind of contract and read the fine print at all times.