What Are Rent to Own Houses?
A rent-to-own house indicates that there will be an agreement between the owner of the house and a tenant stipulating that the tenant will pay a deposit, rent and a rent premium in return for the right to purchase the house in the future. Deposits can range from 1 percent to 5 percent of the price of the property, and the rental premium is earmarked for the down payment.
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Advantages
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If you can't qualify for a mortgage, a rent-to-own agreement affords an avenue for you to put money aside to purchase a house. You also can lock in a property to be purchased in the future if you don't have the funds for a substantial down payment. The typical agreement allows for a one- to three-year time period in which you can accumulate cash and improve your credit score.
Disadvantages
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If you don't end up purchasing the property, you can lose your deposit and rent premiums. You also are still renting, and the money used to pay rent is gone once it is paid. Also, if you're entering a rent-to-own agreement to give yourself time to reestablish credit, you must have that done before the deadline to purchase the property.
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Lease Purchase
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A tenant is obligated to purchase the house at the end of a lease-purchase agreement. This type of agreement provides the owner of the property with the least amount of risk. But if the buyer cannot get financing and ultimately cannot purchase the house, both parties have to come to some sort of a compromise, sometimes involving costly legal advice.
Lease Option
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A tenant and a homeowner also can agree that the tenant will not be obligated to purchase the property at the end of the agreement--this is called a lease-option agreement.
Where to Find Rent-to-Own Houses
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In addition to online listings, a local real estate agent also will have listings of rent-to-own homes.
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