5 Rent-to-own house pitfalls you should never neglect!
Buying a new home is a big decision to make. It requires proper planning, gathering financial resources, and qualifying for suitable mortgage loan terms.
Probably those are the reasons why some people look for opportunities to go for a rent-to-own or lease-to-purchase property.
Some really can’t afford the heavy down payments or sometimes they come with bad credits and don’t get handsome rates on the mortgage loans. So, getting your hands on your dream property might only be possible with a rent-to-own agreement!
But there are many rent-to-own house pitfalls you need to look out for before making this decision.
So, let’s evaluate the various points one by one.
What does a rent-to-own house agreement look like?
As the name suggests, you first need to rent the property and pay a non-refundable option fee in order to buy this property in the future.
During the lease period, you stay in the house as a normal tenant, only that the property gets locked between you and the homeowner as per the agreement signed by both parties.
Now that means the landlord can’t sell off the house to any other buyer, except you, in the middle of the agreed upon ‘Renting’ period!
You keep on paying the rent, as per the contract, till the lease time gets expired; after which you have to decide whether or not you are going to buy this property.
In most of the cases, when you decide not to buy the property at the end of the lease term, the option fee, which is at least 2.5% of the total price of the property, will not be refunded!
What are the various rent-to-own house pitfalls?
1. The seller is in full control of the whole rent-to-own house contract:
Even though it’s you, who has planned the whole thing top to bottom, and will be the possessor of this property in the near future, you can notice quite often that the homeowner makes all the decisions like you have no say here!
2. There’s a huge chance of you ditching your savings:
Don’t know whether or not you have thought about this part, but ultimately you will spend more than buying a house in the traditional way.
You will be paying your rents, which are not quite low, and the option fee.
Moreover , when the rental period is over, and you go to buy the house, you have to pay nothing less.
Hence, you can technically save more if you get a mortgage loan and buy the house, instead of being a tenant and throwing rents every month!
3. In most of the rent-to-own agreements the tenant has to bear the expenses for utilities and services:
Even during the lease period, you have to pay for all the services and the utility bills.
If you think that a crack in the wall needs to be repaired or the grass is growing tall and the lawn needs to be mowed, then all these you have to do yourself.
Even though you are paying for these, you still got to take permission from the homeowner at the end of the day!
I guess that’s pretty much losing your freedom if you ask me!
4. You might not know if you are falling into some kind of a scam:
If you decide to opt for a rent-to-own house contract, then always check the property information and every detail minutely.
Say for example, get a clear picture of who is the actual property owner and with whom are you signing the contract.
Also look out if the property already gone for a foreclosure, and whether or not the home is owned outright and the owner makes regular payments for his mortgage!
All these are important since you are planning to buy this home in the future. Treat yourself as the owner from the start, even if your landlord has the upper hand. You have the right to information!
If you are not wise to check all these, and land into fraudulence, then trust me, you will lose both the house and your money, which you really don’t want to happen!
5. What if the value of the property depreciates over time.
For me, this is the main reason to back out off a rent-to-own property. Suppose you went into the contract with the the value of the property being $200k.
During the lease period of 2 years (take for example), you stay in this property as a tenant with the expectation to own this house.
If you have paid 2.5% option fee, then you need to apply for a mortgage of $195,000.
Now, what if the value of the house suddenly depreciates to $180,000 after two years.
The seller won’t worry at all, for you still have to pay $195,000 because you have already came to terms with the value of $200,000.
Just imagine, the big loss you are about to suffer, and the dilemma, whether or not to buy the house. For in both the cases you are about to lose money!
When should you consider a rent-to-own house?
1. If you are suffering from bad credit and have to wait for more than a year or so to qualify for good mortgage rates.
2. If this is your dream house and you can do anything to get this!
3. If you want to scan the neighborhood first and look if this house suits you the best!
4. The landlord is good and the property is showing signs of high value in the future.
I guess, by now, you have become smart enough to choose the correct option. Still, it is as usual advised to have a talk with a financial counselor about what type of buying options you should go for!