Rent to Own Route – Should you go this route?

With rent to own agreements, you build your down payment over time, with a small portion of your rent going toward the lump sum each month. For example, each month $200 of the rent will go toward down payment, adding up to $7200 toward down payment at the end of the three year period.

Pro: Lower Credit Score Requirements

Many people who can’t get approved for a mortgage right away can get approved for a rent to own agreement. Then, over the rental period, the buyer can work to improve her credit rating so she qualifies for a loan.

Pro: Time to Check Out the House

When you buy, you are buying every hidden problem a house has. Leaky roof? You may not know about it until the first heavy rain. For renters, this is part of the landlord’s responsibility. Most rent to own agreements allow the buyer to pull out if there are serious problems with the house.

Con: Upfront Option Fee

While it is lower than the amount needed for a down payment, there is usually a hefty up-front fee for a rent to own property. And, if you need to pull out for any reason, you will probably lose this money.

Con: Late Payment Penalties

In most rent to own agreements, if you are even a day late on the rent, you lose that month’s credit toward the down payment. So, if you are late just twice a year over the three-year span, that can mean $1000 or more of your money that did not go to the down payment.

Con: At the Seller’s Mercy

If, during the leasing period, the seller stops paying the mortgage and the home is foreclosed on, the buyer is out everything he has put down.

Con: At the End, You Still May Not Qualify

The same issues that led the buyer to choose rent to own in the first place may not get resolved: if your income is still too low, your credit flawed or you are not able to come up with the rest of the down payment, you will be out of luck.

Rent to own is a viable option for someone who wishes to get on the path to home ownership right away. But, examine all of the pros and cons, plus all of your other options, before you jump in.

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