If you’re dreaming of becoming a homeowner, there are many unique ways we can help you reach this milestone. If getting a mortgage is currently out of reach for you financially, rent-to-own properties can be an excellent option for you! In this blog post, we’ll be sharing the details on how you can continue renting and become a homeowner down the road.

What is a Rent-to-Own Home?

Rent-to-own homes give you the option to buy or an obligation to buy a home after renting for a certain period of time. You and your property owner will agree on rent payment terms as well as a future sale price for your home. The rent-to-own agreement allows you to buy a home after a few years of renting. For example, you may agree to an annual percentage increase in your rent payments for a certain number of years until you are ready to purchase the property.

Throughout the lease, the percentage increase in rent will be applied towards the purchase price—this is called rent credit. Rent credits can help you save up for your down payment! When you agree to pay a rent price that is higher than the Fair Market Rent in your area, the lender will count that as “additional rent” every month and count it as credit toward your down payment. If you don’t have a sizeable down payment or a good credit score to qualify for the traditional home-buying process, the rent-to-own process is a great alternative for those who need time to improve their credit score and slowly pay off their down payment through renting.

Advantages of this Program

There are many advantages to rent-to-own properties that people going through the traditional home-buying process may not have. One of the best aspects of rent-to-own homes is that you don’t have to worry about when you will be able to move in or any extra moving costs, you are already there! You have already settled into the property and now you can make it your own. You’ll also be able to lock in your ideal living situation without the risk of home prices skyrocketing. Another advantage is that your rent credits are helping you save money towards the purchase of your home and leading you to a smaller down payment on the property.

With rent-to-own properties, many landlords and sellers typically accept lower credit scores than most lenders would. Lastly, as long as you are signing a lease option agreement, then you are not obligated to purchase the home when the lease is over. If you feel that you cannot keep up with the property once the renting term is up, there is no pressure to purchase it.

Things to Consider

Like any other home-buying option, there are also some disadvantages of rent-to-own properties. If you decide not to purchase the property when the lease is over, your investment and rent credits will be lost since they are non-refundable. Late payments also put you at risk for losing your investments and the rent-to-own agreement as a whole—even just one late payment can jeopardize your ability to purchase the home.

Though the locked in purchase price may be an advantage, if market rates decrease in the future, then unfortunately your purchase price will be much higher than it is worth. Other problems may occur with the property once it is under your name. You may be responsible for all repairs after purchasing the home which may be hard to maintain or finance. If the landlord’s property forecloses or if the landlord gets a lien on the property, it puts the rent-to-own agreement at risk, and you may lose your investments on the property. Unfortunately, financing for your home is not guaranteed. Your credit score and debt-to-income ratio must be in good shape, or you may not qualify for a mortgage loan when the lease is up. Finally, you must do your homework on rent-to-own properties. There are many property owners who want to take advantage of rent-to-own buyers. Be sure to read the agreement thoroughly so you aren’t locked into a contract that does not fit your needs.

Ease Into Homeownership

Rent-to-own homes are a great option for people that are not fully prepared or committed to making a home purchase. It allows future buyers to make small investments to prepare for a down payment and improve their credit score before making the big purchase. Talk to a loan officer today and find out if rent-to-own properties is right for you!

*This material has not been reviewed, approved or issued by HUD, FHA or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency.

This information is provided for convenience only, and Family First Funding LLC and its affiliates (“FFF”) make no warranties concerning the accuracy or completeness of any of the information. Information is subject to change without notice, and FFF is under no obligation to provide updated information. This is not financial, tax, compliance or legal advice and should not be taken or relied upon as such. Each individual should consult with his/her financial, tax, compliance or legal professional. Mention of product, process or service shall not be construed as an endorsement or recommendation by FFF.