Rent to Own: Is It Risky?
At first look, a rent-to-own agreement seems like the perfect solution for someone who wants to buy a house but can't afford to do so at the time. It allows the individual to stay on the property until he's ready to buy. But it does come with a number of risks to consider before signing on the dotted line.
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Description of Agreement
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A rent-to-own agreement is like a standard home lease agreement only with an additional clause that gives you an option to buy the property at some point in the future. Keep in mind that the landlord has the final decision regarding the terms of this lease agreement.
Non-Refundable
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One of the most significant risks of a rent-to-own agreement is the fact that the option fee is usually non-refundable. When the renter agrees to the lease he must pay the option fee in advance, sort of like a down payment, to establish the arrangement. In many cases, the renter also pays a premium with each monthly rent payment that goes toward the purchase price. If the renter can't buy the house after the term is up he loses the fees he's put into the agreement. So if an individual enters into this type of agreement he must be prepared to pay money that he can't get back unless he makes the purchase.
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Termination
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Another risk is that if the renter violates the terms of the rent-to-own agreement, the landlord can still initiate an eviction as in the case of a standard rental lease. If the tenant misses payments, damages the property or violates noise ordinances, for instance, the landlord has the choice to terminate the agreement. The renter must remain on his best behavior throughout the rental if he wants to proceed to a sale.
Late Payments
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One of the main purposes of the rent-to-own agreement is to prove that the renter can make on-time monthly housing payments. The renter sends proof of his payment history to potential lenders to improve his chances of approval. However, if the renter is accidentally late even once it could negate his efforts. Also, during the term of the rental, lender requirements and rules for getting a mortgage loan could shift, making it difficult for the renter to make the purchase down the line.
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