Secrets to know about a home rent-to-own offer

So you’re sick and tired of renting. You want to own your own home, but you don’t have a lot of money for a down payment. You’ve no doubt heard of “the perfect solution”: rent-to-own. But is it really as perfect as everyone says? Hardly. There are some secrets about rent to own properties that you should know. They are the most overlooked aspects of a rent-to-own contract. So, let’s find out the truth about renting your own home.

How rent-to-own works

Is that how it works. House for rent with option to buy. You will have a lease that will typically last 2-3 years. The seller will also expect you to make some sort of up-front payment or option fee. This is usually 1 to 7 percent of the agreed purchase price. In addition to the rent, you will pay what is called Rent Premium or Rent Credit. These additional amounts go toward the purchase price of the home.

Let’s take a look at how a rent to own would work in Salt Lake City, Utah. As of January 2017, the median rent for a 3-bedroom, 2-bathroom home in Salt Lake City is $1,500. Now the additional amount you will pay for the purchase is negotiable. Typically, you should expect to pay 20-50% above market rent. For the sake of discussion, we’re going with 25%, which is about average. Then you’ll pay $1,500 a month in rent and an additional $375 to buy. If your lease is for 3 years, you would have a rent credit in the amount of $13,500. Median home value in Salt Lake City is $280,000. If you paid a 3% option fee of $8,400 and combined it with the rental credit, you would end up with a down payment of $21,900 or 7.8%. Not bad.

The truth about rent-to-own homes

Want to know the dirty little secret few buyers in your position know? If you decide you can’t or don’t want to buy the house at the end of the lease, you will lose ALL the money you paid. That includes the rental premium and the option fee. Missing. All of it. The seller keeps all the money and you call a moving truck and start over.

You’d be surprised how many times this happens. The buyer may have some problems with the house and wants to get out. Lost money. The buyer may not be able to qualify for a mortgage. Lost money. Or imagine the seller defaults on the mortgage and the property is repossessed. Oh! Lost money.

So, before you compete to get the nearest rent-to-own or lease property, be sure to do your due diligence and have the home inspected. Start working with a lender to qualify for a mortgage, and for God’s sake, make sure you love the house.

However, a calculated decision to rent to own a home also has its own benefits.