Sep 10, 2012

Should you Rent-to-Own a Home?

Remember the Layaway programs - like Sears or Sanger Harris used to have? You brought your purchase to the Layaway desk where they held it while you paid a portion of the purchase price each week until you paid for the item. Then you got to take it home. If you didn't make the timely payments, the item went back on the shelf and you didn't get to keep it. Some places still offer these programs.

A lot of folks like to think of renting to own like a layaway program. Only renting to own is even better. You get full use of the house while the 'layaway program' is still in place. Once you've paid for it, it is yours.

However, unlike layaway programs, rent-to-own has a few more costs. Unlike a sweater or a sofa, a home has costs to the owner beyond the purchase price - like taxes, insurance, mortgage interest, upkeep and repairs.

So the cost of rent needs to equal not only the price of the property, but these extra costs. And owners often need to add on about 10% to cover the hassle of managing the property.

All those costs added up will usually exceed the cost of the monthly mortgage payment if you were to outright purchase the property. So why would you rent to own instead of just buy now? Two words: down payment. You may not have it.

The solution? Get with a good mortgage lender and figure it out. A good mortgage officer can help determine if buying is a good option (and I'm not talking about some bait-and-switch on-line broker). A smaller down payment will usually mean a higher interest rate. You're usually better off paying a higher rate ( and lets face it, the rates are still incredibly good) and getting a mortgage instead of renting.

So if you're thinking of renting to own, get out the calculator and run the numbers with the seller or your agent. It may work. Or you may decide to purchase with a mortgage. Or you may decide to keep renting. [where: 75230]

10 comments:

Negi said...

Thanks for great information you write it very clean. I am very lucky to get this tips from you.

Residential Real Estate for Rent

Chris from 123homeloans.co.za said...

If you'll just be living in the house a few years or the fee is low, then renting can be a sensible option. In most cases, it's better to own a home rather than to rent as you get to pay money towards owning your own property. A home loan, however, is a long-term and substantial amount of debt so it's important that you evaluate your job stability and financial status before you decide on.

Tom said...

Rent to own a home is a good options but before entering this buying option you must considered additional cost but not as much as like you are already purchasing a home. Think of renting a home with extra fees and after maturity date you will have your own home.

Will Flannigan said...

Nice blog article. I always think it's a great idea to rent your home for a few years before buying. That way you have more time to acclimate to a certain town, city, or neighborhood and are certain that you'd like to live there. A home is an investment, so you want to make sure you are making a well-informed and justified decision.

I'm a window tinting professional in Forney Texas, and I have recently made my first home purchase in the area after years of renting. Happy that I finally was able to make my decision!

Dan Williams said...

Great article. I'm a Hudson NH roofer, and potential homeowners ask me all the time whether I would recommend buying or selling. Buying is definitely a better long-term investment, but if anyone is in doubt about a certain location it's always a safer bet to rent for a few months prior to purchasing a home, condo, or apartment.

Burlington MA roofer said...

Great article. I always prefer buying properties instead of renting. That's a much better long-term investment than renting. As a contractor here in Burlington MA I always advise my clients to purchase instead of rent.

Anonymous said...

Thanks for the article. It really is informative. I think renting business is booming today and it would be a great idea to have a Holiday Letting Agency help you out in renting out your home.

davis jordan said...

Great post. I prefer purchasing properties instead of renting. That is a better long term investment than renting. As I constantly guide my customers to buy instead of rent a contractor here in Burlington MA.
davis jordan recentaly visited:-http://www.zimbio.com/Real+Estate/articles/SaQMm8ThY-v/MLS+Calgary+SW

Matt Marinella said...

I read a recent article about that renting will be declining over the next 12 months, however once when interest rates hit 5% then you can expect renting to rise again. I own a tinting store Window Tinting Orlando, but have thought about selling the property

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