Homeowners who need to move but are struggling to sell their homes are turning to rent-to-own agreements to find prospective buyers. Under these leasing options, which can last from two to five years, owners allow a prospective buyer to move into the home and pay monthly rent. A portion of the rent is set aside to be used as a down payment on the house at a later date.
Financial experts at Bankrate.com say credit-challenged renters have the chance to try out the house and neighborhood, while saving for a down payment and building up good credit. They can also lock in a sales prices and terms upfront.
The set-up helps homeowners find an eager buyer and long-term renter who can provide a steady income while caring for the house on the owners behalf. The downside is the possibility that the renter could change their mind and opt out of the agreement, which means the owner must start the process over again.
Rent-to-own arrangements are complex and every state has its own regulations, so it’s advisable for renters to meet with an attorney and real estate agent to understand financial implications. Renters should also meet with a mortgage broker so they know how much they need to qualify for a loan.
Financial experts say both parties should treat the deal the same way as a home purchase. Obtain an appraisal and a home inspection, and owners should require a security deposit and reserve the right to evict renters if they fail to make payments. The contract should also spell out how funds will be held by owners, under what conditions the sale will take place, and who is responsible for maintenance and repairs.
With proper planning and due diligence, rent-to-own arrangements can be a viable option for buyers and sellers.
Brought to you buy your agent – a member of the council of residential specialists