Some people might be able to qualify for a rent-to-own home in Albuquerque if a mortgage isn’t the right option for them right now or isn’t an option at all. You can ease into homeownership more slowly and less traditionally with rent-to-own homes.
How does a rent-to-own home work?
There will be a lease for a rent-to-own home. After a certain period of time, you’ll have the option or requirement to buy the property. In addition to the rent itself, the rental payments you’re making should contribute to your future down payment as well. It is possible to build your credit score and down payment at the same time.
It’s a good option if you don’t have the money for a down payment or closing costs right now.
Renting traditionally does not build equity.
You’re getting some benefits of renting and buying with rent-to-own homes, but with caveats that you should be aware of.
In a rent-to-own contract, you’ll probably end up paying a little more than the fair market value since that money will become your down payment when your lease ends.
You might have to pay an option fee, anywhere from 2-7% of the home’s value, to hold your option to buy it. This isn’t always required. If you didn’t buy the property when your lease is up, you would forfeit your extra payments.
What Are the Pros?
Rent-to-own homes have several advantages.
The first thing you’re doing is giving yourself time to put money aside for a down payment.
While you’re saving money, you’re also getting the chance to ensure that the home suits your needs. Your contract will specify how much your payment goes towards your down payment. It can be like forced savings, and if you aren’t great at otherwise saving money, this is beneficial.
Another perk of rent-to-own is that most of these agreements will split the responsibility of maintenance and repairs between you as the tenant and your landlord. You might cover minor repairs and the associated costs, and your landlord could agree to handle the more extensive repairs.
At the end of the least, you can get a home loan and move forward with your purchase. The money that was collected as a down payment goes to your lender.
You still have the flexibility not to go through with the purchase.
What About the Cons?
If you don’t buy your rent-to-own home, you could lose money. In making that decision, you are giving up rent you paid and optional fee if required by your lease.
You might not be able to buy the home at your lease’s end if you can’t qualify for a mortgage. The owner of the house can put the home up for rent again or sell it if you aren’t able to get a loan.
Types of Contracts
There are usually two types of legal agreements you can opt for with a rent-to-own home.
One is a lease agreement that has the option to purchase. In this contract, you have the right, yet you’re not obligated to buy the home as the lease ends. Your option expires if you decide you aren’t going to go through with the purchase and you walk away, although you lose the money you paid beyond the fair market rent.
The second is a lease agreement with a purchase agreement. You might be legally required with this contract to buy the home when your lease ends. You have to be careful under this agreement that you have a home inspection done to ensure there aren’t any surprises after you become the owner.
Finally, it’s also a good idea to get a mortgage pre-approval if you’re entering into the second type of contract to make sure you’ll be able to qualify when the time comes.
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