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real estate: rent-to-own?

Posted on 15. Jun, 2009 by janelle in penny pinchin'

I read a very interesting article on CNN Money titled ‘Rent-to-own your home: Pro and con’.  In today’s economy, some home buyers are having trouble getting financing and sellers can’t find buyers.  A possible solution to this issue is rent-to-own deals.  There’s a lot of differing opinions out there on the rent-to-own and this article explores the advantages and disadvantages on this concept.  Here are the highlights…

Rent-to-own, also called lease-option, deals typically require buyers to pay extra rents (or a “premium”) each month plus up-front fees of about 5% of the purchase price. The regular rent then goes in owner’s pocket (presumably to pay the mortgage), but the premium payments are used to buy down the price of the home.

Pros

• Contracts are typically written to close in 12 to 36 months, which gives buyers the chance to experience homes and neighborhoods before making a major commitment
• The biggest reasons people opt for rent-to-own are to build up down payments and improve their credit profiles so obtaining a mortgage is easier.

Cons

• There is very little protection for buyers who fall behind in monthly payments. If you fall behind and are evicted from the home, you’d lose any up-front fees and rent premiums you paid.
• If financing still can’t be arranged at the end of the rental period, the renter may have to forfeit all the extra cash they’ve invested. The terms for that scenario would need to be spelled out in the contract. 

Read the entire article here.

What do you think?

Tags: cnn money, lease-option, real estate, rent-to-own