Is it Better to Rent, Own, or Rent to Own?


Rent to own st louis mo

When is Renting Better Than Buying A Home?

  • If you do not plan to stay in your location long term. According to a study conducted in 2012, renting a home is less expensive than owning if you plan to live in it for less than 10 years.
  • If you are not equipped to pay for repairs and maintenance on your home. On average, a homeowner pays 1% to 4% of the home’s value on maintenance. This equates to hundreds of dollars per year; renters avoid these costs.
  • If your credit score isn’t high enough to qualify for a mortgage loan at a reasonable interest rate. Establishing a history of on-time rent payments will help build your credit.

What Can You do if You Want to Buy But Can’t?

If you are interested in buying a house but poor credit prevents you from qualifying for a mortgage, or if you are not sure that you’re ready to commit to the house you’re considering, it might be advantageous to look at rent to own houses.

How Do Rent to Own Homes Work?

In a rent to own deal, the renter and homeowner agree to terms that allow the renter the option to eventually buy the house. Many times, the renter gives an upfront payment that equals a percentage of the home’s value. If the renter proceeds with buying the house, that payment goes towards a down payment on the mortgage. If the renter walks away from the home without buying, the money is not refunded.

Until the renter is prepared to purchase the home, he pays rent to the homeowner. A portion of his rent is reserved for a down payment if he decides to buy the home down the road. In example, the median rent across the United States is about $905, the monthly payment in a rent to own agreement might be $1,105, with the extra $200 being reserved for a future down payment.

Advantages to rent to own houses

  • You are able to lock in the home’s price in case the value of the home increases before you are able to buy it. If the value decreases, you might be able to renegotiate the terms of the contract or walk away from the deal. While you will lose the upfront payment and the portion of your rent that is reserved for buying the house if you walk away, this might be far less expensive and difficult than if you bought the house while the value is high and walked away from the mortgage when the value dropped.
  • You are able to build up a sizable down payment towards buying the house. It might be difficult to dedicate the same amount of money to a down payment if you aren’t obligated to it aside as part of your rent.
  • You can get a feel for the house and the community and decide if you want to commit to living there in the long term.

Disadvantages to rent to own houses

  • If you opt to walk away from the home, you will lose all of the money you’ve put towards buying it.
  • If you are not prepared to buy the home when the terms of the contract ends, you will lose the money you’ve invested.

Read this for more.

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