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Rent To Own Programs: The Pros and Cons

09.02.2020 | Uncategorized

Do you want to become a homeowner? Are you considering a rent-to-own program to make your dream come true? Whether you don’t qualify for a conventional mortgage (yet) or you haven’t saved up enough for your down payment, leasing to buy will allow you to take the first step in your homeownership journey—right now.

While there are plenty of potential benefits associated with rent-to-own programs, they’re not right for everyone. In this post, we’ll look at the pros and cons of this popular home-buying option…

How it works

A rent-to-own program allows you to lease a home for a given period (typically a few years) and buy it at the end of your term. When you enter into this type of contract, you’ll pay an upfront option fee. This non-refundable sum will be a relatively small percentage of your purchase price (and it’s often negotiable).

Moving forward, you’ll pay your rent as a tenant—but a portion of this monthly amount will go towards your down payment. There are potential up and downsides to this approach, and understanding them is the first step towards making the right decision.

Thinking through the pros

Here are a few of the potential pros of renting to own.

You can try before you buy

Leasing to purchase allows you to move into the home you hope to buy right away. Once you’ve paid the initial fee, you can start renting your potential dream property—and see if it’s right for you.

You’re under no obligation to buy once your lease is up. In other words: you can start off as a tenant, then see how you feel.

It’s okay to have less-than-perfect credit.

Even if you don’t have pristine credit, you may well qualify for a rent-to-own program. Between the beginning of your lease term and the day you decide to apply for a traditional mortgage, you can take steps to raise your score.

The best part? While you’re working towards better credit—and becoming a homeowner—you can keep the property you want to buy within your sights!

You can save for a down payment.

Many potential buyers underestimate how difficult it can be to set aside enough to put down on a home. From unexpected car repairs to takeout dinners that add up, life has a way of costing more than we think. Fortunately, it becomes much easier when a portion of your rent goes directly towards your down payment!

Lock-in pricing

Home prices can rise quickly—especially in the Greater Toronto and Hamilton Area. A few years from now, the property you want to buy could be significantly more expensive than it is now.

The good news? If your home price goes up after you enter into a rent-to-own contract, you’ll still pay today’s worth when it comes time to buy.

You can make it your own

Until you purchase the property you’re renting, you can make the most of your time as a tenant by making it your own. Whether you paint, renovate, or purchase a new decor, you’ll be doing so with the knowledge that you’re improving your future home!

Considering the cons

Depending on your circumstances, there may be some drawbacks associated with going the rent-to-own route. Before you sign off, here are a few things you should consider.

It’s not a guarantee.

A lease-to-purchase arrangement can give you time to save for your down payment and get your credit in tip-top shape. That said, there’s always a chance that you still won’t qualify for a traditional mortgage once your rental term is up.

There may be some sunk costs.

There’s some risk involved in any real estate purchase, and leasing to purchase is no different. For example, if you decide not to buy at the end of your lease term, your initial fee won’t be refunded.

The same goes for any time, energy, and funds you put into significant home improvements while you’re renting. If you don’t buy the property in the end, you won’t recoup those costs.

There could be more maintenance.

With most rental properties, repairs, and ongoing upkeep falls to the landlord. That’s not necessarily the case with rent-to-own homes. If you don’t want to be responsible for maintenance and associated costs, make sure that’s spelt out in your contract.

You’re relying on the landlord.

While you’re renting a home, it will be in the landlord’s name. That means there’s a possibility that it could go into foreclosure if they default on their mortgage payments.

Your landlord may also have the option to charge stiff penalties if you pay them late (though you can avoid this situation by only entering into a contract that offers favourable terms).

You might pay more than market value.

It cuts both ways. Locking in a price could cost you less if prices go up. On the flip side, you’ll still have to pay the agreed-upon amount if prices drop.

Making the right decision

If you’re thinking of going the rent-to-own route, you’ll want to ensure that you fully understand the benefits and potential drawbacks involved. That’s where working with the right people can come in handy.

An experienced real estate agent can help you find the ideal property, walk you through the rental and purchase process, and answer any questions you might have. They can also help you connect with legal and financial professionals to ensure that your due diligence is done!

Are you interested in learning about our rent-to-own program? Get in touch to ask questions—or click here to find out if you qualify!

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