A rent-to-own contract can allow you to move into your desired home even if you don't have the down payment right away or if you have a dismal credit rating. However, it does have its drawbacks, and you should be aware of them before signing such a contract. Here are a few examples of these potential complications:
You Lose Your Investment If You Default
If you buy your house via a traditional mortgage payment plan, you can sell it and recoup your investment (or at least part of it) if you default on your loan. However, this isn't possible when you default on your payments while making payments for a rent-to-own property. This is because, in a rent-to-own property, you don't own the house while making the payments; you are essentially a tenant. Therefore, if you default, the landlord can kick you out, and you will lose the money you paid towards the purchase of the house.
Less Control Over the Property
Remember that you don't own the house while still making the rental payments. This means you don't have as much control over it as someone servicing a mortgage. It will just be "your house" by name, but you aren't likely to have a major say on renovations or repairs. For example, the owner may not allow you to change the flooring materials or install solar panels on the roof.
No Reprise If Property Prices Fall
When you choose the rent-to-own format, you agree on the purchase price in advance. This means your price will take into account the current state of the economy, neighborhood, and property prices in the area. These (and other factors that determine property prices) might change before the end of the rental period. If that happens, and prices go down, you may be at a disadvantage because you will still have to pay the initial price you agreed on when signing the contract.
You Aren't Guaranteed Financing
Another potential complication of this property purchase plan is that you can't be sure you will get the financing when the rental period ends and you need to buy the house. This is because you don't know what your credit situation will be by that time or whether you will have saved the requisite down payment. You may lose the house that you have come to believe and treat as yours if you can't get the mortgage.
You should never enter any property contract without considering its pros and cons first. It's also advisable to talk to an experienced realtor about the difference forms of property acquisition so that you can make an informed decision.Share