Over the last generation of home buyers in the USA, a common method of buying a home for those without the credit rating to secure a traditional mortgage has been the rent to own option. This is no different in the San Antonio area, and although it is not as popular today due to a strong economy, renting to own is still an option for many would be home buyers.
Internet searches turn up many opinions on the subject, however all agree on 2 things: that the rent to own option is not for everyone, and that for a certain few it is a viable and valuable vehicle towards both home ownership and repairing ones credit rating.
Depending on whether you are wanting to be a renter or landlord, the option of renting to own comes with certain hazards: landlords are taking risks on people with a bad credit history which could ultimately cause them to lose their property, while renters pay a higher monthly rent than the regional average with a portion of that rent going to the eventual purchase price for the home potentially at a reduced cost compared to the market rate at the time of purchasing the home.
For those interested, the process goes something like this: the renter agrees to lease a home for set period of time-typically 1 to 3 years, at the end of which the renter agrees to purchase the home at a price specified at the time the agreement was signed. As part of rent to own agreements, renters can also expect to pay an up front, one-time fee of 1-5% of the home’s value (at the time of singing the agreement), which can be applied towards a down payment on the eventual purchase of the home. Depending on your landlord, renters may also agree to pay additional rent each month which can be applied to the down payment, when it is time to purchase the home.
For a lot of people in our area, this may sound like a great idea, but there are many pitfalls that renters should be aware of when agreeing to a rent to own contract: having a locked in price 3 years before buying a home is a huge advantage, but besides the reality that someone could easily find themselves financially worse off 3 years down the road from signing the agreement, you could also miss out on lower interest rates along the way, or the neighborhood may deteriorate rapidly, causing a fall in the value of your home. Renters can also expect to pay higher than average rental rates for the area, until the time of purchasing your home arrives.
It is important to read any contract thoroughly before signing on the dotted line, and in the case of home purchases, you should make sure to consult your Realtor for any questions about any rent to own agreements you are looking to make.