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Do You Know The Key Advantages And Disadvantages Of A Rent-To-Own Home?

By: Don Cramer

The Good And The Bad Sides Of Rent-To-Own Homes

Many consider buying a house a huge deal. It's probably the most important purchase anyone will ever make in his entire life. Since it is something that will impact everyday existence in a big manner, caution should be taken at every step.

Checking Out Rent-To-Own Homes

It all starts with the careful weighing of all options available. Homebuyers as well as sellers should go through deals with a fine-toothed comb. Contracts once signed become binding so it would be best not to affix a signature on anything until arrangements are finalized.

In the case of rent-to-own houses, there are definite benefits and drawbacks for homebuyers. Take a look at some of them below.

1. In case there is something wrong with a particular house, renters are allowed to walk away from the deal. This is subject to the type of agreement they entered into, of course. While doing this will cause renters to lose option fees made along with all the rent credit money they forked over, this amount is way more acceptable than if they bought the place outright and tried leaving later.

2. Homebuyers have the luxury of time to put together decent income while also fixing their credit report if they are just renting a home.

3. There is the upfront option fee that homebuyers still need to settle. This is typically a portion of the home selling price that both parties agreed on, normally worth thousands. The money will count as part of the down payment should renters opt to purchase the house. However, realistically, it is tough to amass that amount of money prior to the date renters start renting.

If buyers are a day late on one month's worth of rental payments, rent credit for that particular month is usually voided under most agreements. Use an earlier example, where the renter of three years got a monthly rent credit of $400. If his payments were delayed only three times a year, his down payment once the lease period expires would be around $3,600 less than the original amount. The moral of the story: prompt payment is a must for rent-to-own leasers.

4. New buyers take on the responsibility for repairs in rented apartments once they become the owners. This can even start within the period of the rental agreement. It can mean paying for new washer and dryers when the original conks out or going up a ladder to clean clogged gutters. All these, the new owner has to take care of himself.

For the sellers, here are the upsides and downsides of rent-to-own properties that can be expected.

1. Renters interested in owning property often treat the house and the community it is in better. After all, they're in for the long haul here. They plan on staying in the same place and not moving again next year.

2. If potential homebuyers show up wishing to buy the house at a more expensive price, sellers cannot accommodate them. The contract they entered into with the renters has got their hands tied.

3. If at the contract's end the renters change their minds and back out of buying the house, sellers have the rent premiums and option fee for income. Unfortunately whenever this happens, sellers are forced to start over, which can be frustrating for homeowners just itching to be rid of their old residence.

4. What if home values hit rock bottom? The good news is sellers are able to lock in a steeper price during the onset of the rent-to-own agreement.

Sellers decide on the house sale price as well as the rent to charge. This happens prior to entering into any kind of agreement. Like any other sale, there's room for negotiation on the two amounts. However, buyers and sellers need to keep in mind that once an agreement is signed, sale price for the home gets locked in for the duration of the rental period, which spans one to three years. Within this timeframe, the price is not affected by dips or spikes in prevailing housing costs. What was agreed upon in the contract stands.

For renters, they are required to pay a rental premium as well as an option fee. The latter is a fixed amount that renters pay sellers. By the end of a particular lease period, if renters choose to buy the property, the option fee is then included in the down payment. If renters back out, the option fee acts as income for sellers. Rental premiums refer to amounts that are a little over the usual rent. A percentage of the money goes into the down payment.

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