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Rent To Own: All The Things You Need To Know

By Tabitha Naylor

When it comes to real estate in California, the Bay Area is considered is one of the most expensive places to buy a home in. That's perhaps the reason why many opt to rent instead. However, for the past year, the difference between renting and buying a home has greatly decreased (from -35% down to -19% (cr. Trulia Trends) making buying a wiser long term choice than renting. If you want to take advantage of this fact and get your dream home but don't have enough funds yet, you might want to consider getting a rent-to-own home.

What is Rent-to-Own?

As its name suggests, properties that are marked as rent-to-own allows you to pay for your chosen house in monthly increments while letting you live in and use all the things included in the property.

Generally, rent-to-own homes require not only a monthly rent but also a monthly premium or credit and a one-time option fee. Both the premium and the option fee (3-5% of the selling price) are acknowledged as part of the down payment, if you still decide to purchase the home once the rent term expires. Otherwise, they will simply be profit of the homeowner/seller. Due to these additional fees, the rent tends to be a bit higher than regular apartments for rent, but in exchange, you are given head start in claiming your dream house.

What Should You Consider Before Getting a Rent-to-Own Contract?

Rent-to-own homes are very desirable since they offer plenty of advantages, but there have also been numerous horror stories attached to this setup, both for the seller and the buyer. To avoid falling in such a horrible scenario and get the best out of your rent-to-own experience, you should remember the following:

  • Evaluate Your Finances and Repair Your Credit. Only 10% or so of rent-to-own agreements become successful, mostly because the renter is stuck with bad credit and can't get sufficient funds. So before you look for RTO homes, it's best to evaluate your finance, start repairing your credit, and consult a loan officer to give you insights on how you will fare after 3-5 years based on your current financial situation. Also, be responsible and control your expenses; try to eliminate as much old debt as you can and avoid getting more.
  • Find and Compare RTO Homes. There are actually a lot of rent-to-own or lease-to-own homes in Bay Area right now, but not all of them will suit your needs and budget. You need to do your research to find the best ones. Visit your local housing counselors, know the real value of your desired homes, and compare features and payment plans before getting a contract.
  • Get Written Agreements. You want to have a real and solid claim on a home, especially if you are resolute on having a house of your own. That means you have to be clear on what goes in the contract before you sign it. Discuss the terms that will be included such as making sure the house won't be sold to anyone else unless you decide not to purchase it and that family members can continue the contract in case you are incapacitated or died. Having the rent, option, and sale contracts analyzed by an attorney can also give you insights on your benefits, drawbacks, and possible exit strategy.

A rent-to-own house can help you get your dream home a lot quicker, but you still have to be cautious, know your options, and get a solid claim on it. Otherwise, you might simply lose more money than you can afford.

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