Should You Rent To Own A Home? – Pros and Cons
In today’s real estate market, we get tons of calls and emails asking about rent-to own homes in Ohio. So why is this such a popular request?
Many people think it’s a great alternative to buying a home when they have bad credit, a bankruptcy, divorce or no down payment. In the Cleveland, Ohio area, we get asked about these scenarios a lot.
Many people think rent-to-own/lease-to-own or lease option is as easy as renting a home and eventually owning it. That’s not the case in most situations. Rent-to-own is also known as Lease Option, Land contract, leasing with the option to purchase.
The cons of renting-to-own a home are a higher risk of losing the home especially if a payment is late or there’s a default. What most people don’t know is that there is a high down payment required to initially lease-to-own/rent-to-own. Most people are surprised when they hear this. Only a portion of your payment each month goes to the principal of the home.
There are limited amounts of homes available to choose from so you’re not able to really shop around for the perfect home or home of your choice. When people call or email about renting-to-own, I typically give them the scenario of renting a sofa…
When you go into a store that rents furniture, you have a limited amount of sofas to choose from. Maybe they’re all red or have large flowers on them. Oh well, those are your options. You end up paying per week or month for the sofa and end up paying a LOT more than the sofa is actually worth. So you end up overpaying for a sofa that you may not really love to begin with. Miss one payment and they take it back. Now imagine having to keep that same sofa in your home for many years and can’t get rid of it… You will probably regret it and wish you had waited until you could finance one or pay cash. Then you’d have paid much less and have a sofa that you love!
Many home sellers know that people looking to rent-to-own have bad credit. Many require a high down payment and then start collecting monthly payments. They know that the odds of someone with bad credit will have a higher risk of defaulting on their agreement as most people with bad credit tend to have bad payment histories. Many times even if you’re just a few days late, you can lose the home. You will also need to hire a good real estate attorney that is familiar with the process to make sure the contract is drawn up correctly.
There are cases where renting-to-own may be a good idea. If you love a home and it belongs to a family member, it may be a good idea to draw up the legal documents and move forward with the process of owning the home. This is a good alternative between family to transfer ownership of a home legally without financing.
If you’re considering renting-to-own a home, it’s probably in your best interest to wait and rent a home for a year or two depending on your situation and credit. Even with a foreclosure or bankruptcy, it’s possible to own a home in a few years from discharge. You will want to save as much money as you can, work on your credit score by paying off debts, making on-time payments, building a credit history, etc. If you need assistance with your credit and need help figuring out which route to take and what to do to get your credit score up, contact us anytime. We’d be happy to assist you. In order to buy a home you will minimally need a credit score of 620 and a down payment of 3.5%. This is very possible and credit scores can rise significantly within a year if worked on correctly.
Once you have brought your credit score up and saved for a down payment, then you can get an FHA loan and look at ALL your housing options. There are many more homes to choose from when you are in the open market. This will ensure you find a home that is right for you since you will likely be living there for many years.
If you’re thinking of buying or selling a home in the Cleveland, Ohio area, contact Cleveland’s RE/MAX Realtors to get pre-approved for a mortgage, get help with your credit and learn about the entire process. We’re always here to help and guide you in the right direction to home ownership.