Source: The Ascent —
Although home prices in some regions of the country have softened, the median price of a single-family home still rings in at just under $385,000. With mortgage rates hovering around 7%, the monthly payment alone pushes many would-be home buyers out of the market. For those buyers, an alternative like rent-to-own may be worth a look. Here, we outline how rent-to-own works, how it can help buyers get into a home now, and a few red flags to be aware of.
What is rent-to-own?
Rent-to-own, sometimes referred to as a “lease option to purchase,” is an agreement in which you rent a home for a set period of time with the option of buying it when your lease expires. While the lease is active, part of each rent payment goes toward a down payment on the house.
4 ways rent-to-own can help you buy a house
For some, rent-to-own represents an alternative way to buy a home. Here’s how it could work for you.
If your credit score is not up to snuff but you desperately want to buy a home, a rent-to-home arrangement may be easier to qualify for than a traditional mortgage. In fact, the seller may not even run a credit check. That’s because they know that if you later decide you don’t want to buy the home or cannot qualify for a traditional loan, they get to keep an option fee collected as well as the rent credits collected each month (more on those in a moment).
2. Rent-to-own buys you time
Let’s say you sign a three-year lease. That gives you 36 months to get your credit score in shape. It also gives you time to save more money for the eventual purchase of the home.
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