In 2023, almost half of renter households spent up to 30 percent of their income on rent. It's no secret that rent is expensive these days, and for many people, the prospect of owning a home might seem unachievable.
But if you've always dreamed of owning a home, there are ways and means of bringing this dream to fruition in the form of rent-to-own homes. But how does it work and what should you know before committing to a rent-to-own home?
Find out in this blog.
What Are Rent-to-Own Homes?
Essentially, a rent-to-own home is a homeownership pathway. It makes the prospect of owning a home achievable. Rent-to-own homes include a rental agreement with a clause that either gives you the option to buy the home upon lease expiry, or the option to buy it after a certain period of time.
A portion of your rental payments go towards a down payment on the home. This is a great way for renters to break into the property market if the traditional homebuying process has not been achievable for them.
One of the greatest rent-to-own benefits is that it allows you to build a decent down payment while improving your credit score.
How Do Rent-to-Own Homes Work?
Let's take a look at some of the finer details of the rent-to-own process:
- You can choose from two options: a lease option or a lease-purchase
- You pay rent to the landlord, while a portion of this rent goes toward the down payment of the home or a percentage is applied to the purchase price
- Some rent-to-own contracts require you to maintain the property and cover the cost of repairs
Here's what you need to know about the two rent-to-own options/contracts:
The Lease-Option
This contract is obligation-free. Basically, you have the right to choose whether you want to buy the home after your lease expires. You can walk away from the home without having to pay any other fees or the obligation of paying rent.
However, in some cases, you might lose the portion of money saved from your rental payments, also called rental credit. But you won't be under any obligation to continue renting.
The Lease-Purchase
This option is not as flexible and stipulates that you are obligated to purchase the home after a certain period of time. Before signing the contract, you can agree on this date with your landlord/the property owner.
There is a lot of legalese that goes into these types of contracts so it's very important to review your contract with a real estate attorney before signing on the proverbial dotted line.
It's also important to do your due diligence when signing into a contract like this. Make sure you can secure the mortgage you need to pay for the home when the date comes around. Essentially, you need to treat this contract as if you were outright buying a home.
Are You On a Homeownership Journey?
If you're currently renting a home but you're interested in flexible homebuying, this is where our team at PMI Minnesota can help. Rent-to-own homes make property ownership achievable, but you might need help finding the right property, first.
Check out our extensive list of homes for rent and please reach out to our team if you need assistance on the rent-to-own process!
