Today on MYM360 – Is Rent-to-Own a Good Idea? I got an interesting question from a listener who wanted to know if rent-to-own was a good idea. He and his wife really want to buy a house but they can’t seem to qualify for a conventional mortgage. I think rent-to-own is a great idea but you must do your due diligence first. Here are some top things to keep in mind if you are considering this approach to home buying:
- Know what you can afford. The whole idea is that you rent a place you want to buy for 1-3 years but during that time you will typically pay more in rent because a portion of that payment should go in escrow for a down payment or closing costs. So, you will need to pay more than your rent would typically be. Also, you will be expected to purchase the home at the end of that period, so you need to have a down payment, etc. all ready to go. So, if you have no savings this might not work for you.
- You will need two agreements or contracts. One for the rental and one for the purchase. And, everything needs to be spelled out in detail, including out clauses for you and the seller. For example, as the buyer, you typically pay an option fee that you would lose, if you don’t purchase the home at the end of the rental time frame. But there is lots of info that needs to be spelled out in these contracts such as who pays for insurance and repairs during the rental time and the selling price of the house.
- Finally, I mentioned due diligence earlier – this means that you ensure that the person you are buying the house from has the right to sell it – that there are no liens or judgements pending and that it passes a home inspection.
I think it is a good idea but it requires the same amount of work and thought as if you were buying the house outright because that is exactly what you are pledging to do.
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