How To Get Your Housing Finances In Order

Buying a first home is elusive for many young people. You have to come up with a huge down payment. Your credit score needs to be high or needs to be improved. You have to decide the house for which you want to make your biggest financial commitment. While there are more issues, these are the big ones for most people. And they have to be accomplished at the same time.

Or do you?

Rent-to-own can be an easier way to get your finances in order.

What Is Rent-To-Own?

Renting to own is also known as “lease with an option to buy.” The bottom line is that the option gives you great flexibility both financially and to make the big decision about where you want to put down your roots.

Lease with an option to buy is exactly what it says. You gain the option to buy, but are not required to buy the house you are leasing.

If you find the neighborhood isn’t to your liking or the house is going to soon need major repairs, you can walk away without purchasing at the end of the lease.

But it is an option, and rent-to-own does cost you some money if you don’t follow through with the purchase.

Some Rent-To-Own Variables

In a rent-to-own scenario, you’re paying above-market rent. A portion of each rent payment gradually builds your down payment. When $150 of each month’s rent goes toward the down payment, in two years you’ll have accumulated a $3,600 down payment.

If your credit rating is decent and other factors like a steady job are in place, rent-to-own qualifies you for a mortgage to become the homeowner.

In a lease-option arrangement, you will be asked to pay an “option fee” at the beginning of the lease. The option fee basically replaces the higher rent, but the option fee applies toward the down payment when you complete the purchase. How it's structured is negotiable.

Another main difference between a simple rent agreement and a rent-to-own agreement is that you become responsible for some of the maintenance and repairs.

This is a big reason sellers prefer rent-to-own arrangements. You, as the potential buyer, are ready to take on homeowner responsibilities.

Instead of being concerned that a renter will trash the property, the landlord is assured you’ll treat it as a future owner. This means you fix the leaky toilet instead of calling the landlord in the middle of the night.

Is It The Same As Any Other Home Purchase?

You and the homeowner can also negotiate the purchase arrangement at the end of the rent-to-own period.

This is when the owner becomes the seller and you become the buyer.

The seller may want all of his or her money at one time. Now that you have a down payment and your finances in order, you can qualify for a traditional mortgage and everyone is happy.

Sometimes it’s a good idea for you to work with a financial counselor during this time so that your credit rating is in good shape. But you still might be a little short of the goal.

The seller knows that you have the down payment. They also knows you pay the rent on time and are responsible about maintenance.

They may be willing to seller-finance the house without you qualifying for a traditional mortgage. Another approach is seller financing for five years with a balloon payment, so they receive all of their money when you do qualify for a mortgage at a later date.

Rent-to-own creates more options for both of you. But mostly, renting to own helps you get your finances in order in many ways.