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Bankrate has answers. Leasing a house offers tenants the sense of security of living in a home, as well as the flexibility of not having to purchase a property. As with any lease, the terms of the document determine how long you can rent the property, the agreed-upon monthly rent, and other miscellaneous conditions such as required maintenance of the house or yard.
Under a lease with the option to buy and depending on the exact terms of the lease , every rental payment acts as an investment toward a down payment on the house.
Rent-to-own agreements are an attractive option for many individuals or families that have trouble securing a mortgage loan.
When deciding between leasing an apartment vs. For instance, a college student who plans to leave town each summer may not be able to fulfill a long-term lease and the alternative leasing options mentioned above would be ideal in their situation.
If you do decide to lease an apartment, an apartment lease operates the same way as leasing a house — albeit without the option to purchase the apartment unit or building. The downside is rent-to-own comes with big risks to consider. Instead of having to fork over a significant down payment when you move in, you build equity over a specific period of time by paying higher rent.
Moving into a house without qualifying for a mortgage may seem like the answer. Even if your contract is set up so that part of your rent is going toward equity in the home every month, your rent prices will be higher because of that.
If you have a rent-to-own contract for a couple years, you have no way of knowing what the real estate market or local economy could do during that time. Sure, your home value could go up, but it could also drop.
The purchase price you lock in at the start of the contract is usually inflated to account for rising home values. But what happens to all of the cash you forked over in higher rent and option money? Something as small as a late rent check or not paying for a repair in a "timely manner" could release the landlord from any obligation to honor the contract. While a rent-to-own agreement is a legally binding document, it has way too many loopholes to be a guarantee.
Plus, you lose so much money in the process if the deal goes sour. The accrued rental credits plus the initial deposit will be a partial down payment on the home if the renter exercises the purchase option. If the renter decides not to purchase the home, this money is forfeited and kept by the homeowner. A lease purchase option is a possible path for a buyer who does not currently have enough money for a down payment but will in the next couple of years, or for a buyer who has credit issues that will clear up in the same time frame.
Any value increase in the home during the rental period also goes to the buyer, allowing equity to build before the actual purchase. To exercise the purchase option and complete the sale, the buyer will need funding, usually through a traditional mortgage. The lease purchase contract also might be written to allow the renter to transfer the purchase option to a third party. With this ability, the renter could realize any gain in the home value by selling the purchase option to someone who would like to buy the home.
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