Is a lease-to-buy property right for you?


Here’s what you need to know about enrolling in the Rent-to-Buy program.

In today’s real estate market, many buyers struggle to buy homes for one big reason – there are limited inventory that the value of real estate is moving up. Thus, you will not be able to afford to buy a house right now, despite mortgage rates sitting near record lows.

If you really want to buy a home but can’t rent it out right away, you might be interested in the Rent-to-Buy program. Here we will discuss the pros and cons.

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How rent-to-own works

In a lease agreement, you sign a lease for the home, which you then have the right to buy or are required to repurchase after a certain period of time (usually up to five years, although this period may be longer). shorter). Meanwhile, your landlord, who is also your seller, will help you save money on that home by allocating a portion of your monthly rent to an account. advance payment on this property.

Benefits of Rent-to-Buy Programs

A buyout program can allow you to buy a home in a few years if you can’t rent it out right now, whether it’s because you don’t have enough money for a down payment or your credit score is low. not high enough to qualify for mortgage… These programs are also a form of forced savings, as a portion of your rent is set aside to cover your home purchase.

Plus, some rental agreements don’t force you to make a purchase, so you get flexibility with this setup. If, after renting your home for several years, you decide not to buy it, you can refuse. However, some lease-to-purchase agreements do coerce you into making a purchase or otherwise face fines. Therefore, you need to carefully review your agreement and make sure you understand what terms you are subscribing to.

The flip side of lease-to-buy programs

With a rent-to-buy, the amount of monthly rent you pay will usually be higher than what you would pay for a rented home of comparable size. Of course, that extra money goes towards your home’s down payment, so you don’t just throw it away. But if you want more flexibility in your finances, you might be better off just renting an inexpensive home while you put aside your down payment while working on increase in your credit, or both.

Plus, if you can’t qualify for a mortgage after your lease expires, you won’t be able to buy your home even if you want to make a deal. And at this point, you can risk getting a costly fine, even if you are struggling to keep your end of the bargain.

Finally, there is one thing you should know: when entering into a lease-to-purchase agreement, you will need to quote a specific selling price when you enter into the agreement. But if home values ​​fall over the next few years, you may end up paying more than necessary.

Right now, as mentioned, home prices are indeed overpriced, so if you enter into a three-year lease with ownership of the lease and buy a home for $ 300,000 when that period expires, you will be tied to that price. But a home that can be sold for $ 300,000 in today’s market could only be worth $ 260,000 in three years, when the housing market cools down. So you are at risk.

While a lease less ownership may be a smart choice for you, in today’s market it may not make sense and can also be very difficult. With a lease agreement, sellers take on some degree of risk that you won’t buy the house. And since this is now a seller’s market, they usually don’t have to take that kind of risk. But if you do Find a seller who plays, be sure to weigh your options carefully before signing one of these contracts.

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