Most of us are very familiar with the term “rent-to-own”. Places like Prime Time and Rent A Center have built an empire of rent-to-own merchandise, even though the buyer usually ends up paying twice the actual value of the item. While this may be great for those with bad credit, most of us would rather avoid going down this road. Homes are no exception, especially if you are buying a home on a rent-to-own basis.
While rent-to-own may be good in the short term, it can prove to be an expensive way for a person to purchase something they intend to keep. For example, a rent-to-own purchase sounds compelling for a few dollars a week. The agreement is usually for about 15-20 months, and that’s where the company makes its money. While you may only pay a few dollars a week, the total amount quickly increases to nearly twice the cost of the item.
Along with the rent, you must also pay applicable sales tax. As with commodities, rent-to-own real estate has its drawbacks. While it’s great for those with less-than-stellar credit, you usually end up paying back a lot more than the mortgage. You will still have to pay back the lender’s mortgage, although this amount will not be as high as if you decided to get a home on a rent-to-own basis.
In most cases, rent-to-own homes are put on the market by their owners. This way, you will be dealing directly with the homeowner. At first it’s a traditional lease, then if you decide you want to keep the house, you switch to rent-to-own. You and the homeowner will then work out an arrangement, usually for a few years. Some homeowners are very flexible and will work with you to get the price they want for their home, while others will charge you more to make a nice profit.
If you have bad credit and can’t get approved for a mortgage, then rent to own will be your next best option. While some people don’t like this because of the price, it is a better option than a condo for many people. With a rent-to-own home, you are paying money for the home, not just the rent. In some cases, this is fine, although you should make sure to double check with the homeowner before agreeing or committing to anything. That way, you’ll know how much you’ll be paying for the home – and for how long.