<h2>Top 10 questions to ask when "Renting-to-Own" a home</h2>



<p>"Rent to own" has become popular over recent years. Home prices have risen, and first-time buyers find it more challenging to get started on the property ladder.</p>



<p>But what exactly is rent to own, and what are the most often asked questions about it?</p>



<p>Well, rent to own is an alternative route to homeownership. Often for those who can't obtain financing due to poor credit or because they haven't saved enough money for a down payment, or both. The plan is that you rent a home for a certain period with the option of buying the property before the lease ends.</p>



<p>Rent is paid throughout the lease, and a payment percentage is applied to the purchase price. This may have been fixed at the outset of the lease.</p>



<p>And, the most common questions:</p>



<h2 id="h-1-what-monthly-rent-can-i-afford">1) What monthly rent can I afford? </h2>



<p id="h-unlike-renting-an-apartment-where-once-the-rental-is-paid-to-the-landlord-it-is-not-recoverable-renting-to-own-is-effectively-an-investment-you-are-making-in-the-home-for-the-future-in-other-words-you-are-making-a-significant-commitment-to-keep-on-with-monthly-payments-even-after-the-lease-expires-as-you-are-buying-the-apartment-it-s-akin-to-having-a-mortgage">Unlike renting an apartment, where once the rental is paid to the landlord, it is not recoverable, renting to own is effectively an investment you are making in the home for the future. In other words, you are making a significant commitment to keep on with monthly payments even after the lease expires as you are buying the apartment. It's akin to having a mortgage;</p>



<h2 id="h-2-how-much-is-required-at-the-start-of-the-lease">2) How much is required at the start of the lease? </h2>



<p id="h-usually-this-will-be-the-first-month-s-rent-plus-any-security-deposit-the-landlord-requests-perhaps-2-or-3-months">Usually, this will be the first month's rent, plus any security deposit the landlord requests, perhaps 2 or 3 months.</p>



<h2 id="h-3-if-i-take-the-option-to-buy-how-much-down-payment-will-be-required">3) If I take the option to buy, how much down payment will be required? </h2>



<p id="h-one-benefit-of-rent-to-own-deposits-is-that-they-are-generally-smaller-than-a-mortgage-downpayment-mainly-if-some-rent-has-been-applied-towards-the-purchase-price-typically-around-5-10-of-the-home-price-may-be-required">One benefit of rent-to-own deposits is that they are generally smaller than a mortgage downpayment, mainly if some rent has been applied towards the purchase price. Typically, around 5 – 10% of the home price may be required.</p>



<h2 id="h-4-do-i-need-to-exercise-the-option-to-buy">4) Do I need to exercise the option to buy? </h2>



<p id="h-this-depends-on-the-agreement-with-the-landlord-in-most-cases-it-is-1-or-5-years-you-will-need-to-save-money-toward-the-purchase-price-during-this-time-so-you-have-a-better-chance-of-getting-approved-for-a-loan-it-s-essential-to-determine-this-at-the-outset-and-have-it-written-into-the-agreement">This depends on the agreement with the landlord. In most cases, it is 1 or 5 years. You will need to save money toward the purchase price during this time, so you have a better chance of getting approved for a loan. It's essential to determine this at the outset and have it written into the agreement.</p>



<h2 id="h-5-how-much-of-the-rental-payments-is-credited-toward-the-purchase-price">5) How much of the rental payments is credited toward the purchase price? </h2>



<p id="h-this-amount-is-negotiable-with-the-homeowner-but-generally-around-20-is-considered-fair">This amount is negotiable with the homeowner, but generally, around 20% is considered fair.</p>



<h2 id="h-6-who-is-responsible-will-pay-for-repairs-and-maintenance-during-the-lease-period">6) Who is responsible will pay for repairs and maintenance during the lease period? </h2>



<p id="h-technically-the-majority-of-your-monthly-payment-is-still-going-toward-rent-which-makes-the-homeowner-legally-obligated-to-fix-any-maintenance-issues-in-many-states">Technically, the majority of your monthly payment is still going toward rent, which makes the homeowner legally obligated to fix any maintenance issues in many states.</p>



<h2 id="h-7-what-if-the-property-needs-any-repairs">7) What if the property needs any repairs? </h2>



<p id="h-if-the-home-needs-repairs-the-responsibility-for-fixing-such-items-should-be-agreed-upon-at-the-outset-if-the-tenant-has-to-fix-them-perhaps-the-final-purchase-price-can-reflect-this">If the home needs repairs, the responsibility for fixing such items should be agreed upon at the outset. If the tenant has to fix them, perhaps the final purchase price can reflect this.</p>



<h2 id="h-8-how-can-i-verify-the-landlord-is-making-their-payments-on-their-mortgage">8) How can I verify the landlord is making their payments on their mortgage? </h2>



<p id="h-the-contract-can-stipulate-that-you-can-contact-the-lender-to-make-sure-all-payments-are-being-made-on-time">The contract can stipulate that you can contact the lender to make sure all payments are being made on time.</p>



<h2 id="h-9-will-my-credit-rating-improves-during-the-rental-payment-period">9) Will my credit rating improves during the rental payment period? </h2>



<p id="h-the-rent-to-own-agreement-will-state-that-you-will-need-to-purchase-the-home-after-a-set-number-of-years-to-not-lose-out-on-the-payments-you-ve-made-toward-the-house-you-need-to-do-your-best-to-ensure-that-you-ll-qualify-for-a-loan-on-the-remaining-balance-to-purchase-the-property">The rent-to-own agreement will state that you will need to purchase the home after a set number of years. To not lose out on the payments you've made toward the house, you need to do your best to ensure that you'll qualify for a loan on the remaining balance to purchase the property.</p>



<h2 id="h-10-can-i-extend-the-time-i-m-leasing-if-i-don-t-qualify-for-financing-to-purchase-the-home">10) Can I extend the time I'm leasing if I don't qualify for financing to purchase the home? </h2>



<p id="h-in-some-instances-you-may-not-be-able-to-improve-your-credit-rating-enough-to-obtain-a-mortgage-at-the-end-of-your-lease-period-in-other-cases-it-s-possible-to-get-a-1-2-year-extension-that-provides-additional-time-for-credit-repair">In some instances, you may not be able to improve your credit rating enough to obtain a mortgage at the end of your lease period. In other cases, it's possible to get a 1-2 year extension that provides additional time for credit repair.</p>

Top 10 questions to ask when Renting-to-Own a home

<h2 id="h-does-rent-to-own-build-your-credit">Does Rent-to-Own Build Your Credit?</h2>



<p>A rent-to-own agreement allows you to rent a home for a specified period while providing the option or requirement to buy it before the lease expires. It is essentially a standard rental agreement and adds an option to buy the property at or later. Often the purchase price is also agreed in advance.</p>



<p>Depending on the contract, a portion of the monthly rent payment can be put towards the eventual purchase price, helping you build home equity as you go. This is a beneficial alternative route to homeownership for those who can't obtain financing due to poor credit or haven't saved enough money for a down payment. It can also be beneficial to buyers in a market where house prices are rising.</p>



<h2><strong>Types of rent to own agreements</strong></h2>



<p>Such rent to own contracts generally fall into one of the following two categories:</p>



<h3><strong>Lease option</strong><em> </em></h3>



<p>Here, you'll have the opportunity to buy the home if you want to but are under no legal obligation to do so. You can walk away after the lease is up if you change your mind; and</p>



<h3><strong>Lease purchase</strong>: </h3>



<p>In this case, you'll be legally obligated to purchase the home at the end of the lease agreement. If you abandon the deal because you no longer want it or cannot afford it, you could be in for a legal battle.</p>



<h2><strong>Building or rebuilding your credit rating</strong></h2>



<p>There are certain challenges for anyone planning to buy a rent-to-own property with poor credit, perhaps due to having other debts such as high-interest rate bearing credit card or auto loan debt. The first is to make sure that once the option to buy has to be exercised, their credit rating is good enough to secure a mortgage to fund the purchase. The second is to be sure that once a mortgage is granted, you can continue with the necessary mortgage repayments.</p>



<p>So, the question often arises: does buy a rent-to-own property help build or repair your credit?</p>



<h3><strong>Your credit rating</strong></h3>



<p>With a mortgage or car loan, you usually make a monthly payment for an agreed set period. While making such timely mortgage or car payments may help your credit. Generally, your rent-to-own payments usually have no impact on your credit score at all.</p>



<p>The only accounts which show up on your credit report are reported to the credit bureaus. Are you meeting or defaulting on such payments that ultimately determine your credit score and rating.</p>



<h2><strong>Build your Credit -</strong> <strong>What can be done?</strong></h2>



<p>Clearly, suppose you really want to purchase the home at the agreed time. In that case, you need to work out how to boost your credit rating so that a mortgage lender will look favorably upon your application for a loan.</p>



<p>One way is to ask your landlord if they agree to report the rental payments to the credit bureaus such as <a href="https://www.equifax.com/personal/" target="_blank" rel="noreferrer noopener">Equifax</a>. It might be necessary to provide a copy of the rent-to-own agreement and receipts showing your rental payment pattern.</p>



<p>Provided you make all of your rental payments on time it's possible that your credit score can go up. It goes without saying that late or missed payments will affect your score negatively.</p>



<p>To improve the chances to obtain a mortgage loan and be in a position to purchase the property once the lease period is up, it's well worth keeping track of every component of your credit to help build your credit score. Pay down debt as much as you can, especially any high-interest debt such as for credit cards. Continue making all payments on time and avoid unnecessarily taking on new debt.</p>



<p>You should also know your credit score before you sign a rent-to-own agreement and learn what's on your credit report.<strong> </strong>While there's no guarantee that you'll qualify for a mortgage at the end of the lease agreement. You can use the rental period to save, strengthen your credit and firm up your finances; you'll be in a better position to qualify.</p>

Does Rent-to-Own Build Your Credit?

<h1 id="h-what-are-the-pros-and-cons-of-rent-to-own"><strong>What are the pros and cons of rent to own?</strong></h1>



<p>Are you thinking about entering a rent-to-own contract with your landlord?</p>



<p>It can be a somewhat confusing concept, but the gist isn't different from renting to own furniture or appliances.  </p>



<p>But you're probably hesitant -- and rightfully so -- about entering into a rent-to-own agreement when you're buying a house. That is, after all, a much bigger purchase than a refrigerator or a couch.</p>



<p>In this article, we'll look at the pros and cons of rent-to-own real estate agreements so that you can make an informed decision.</p>



<h2 id="h-pros-and-cons-of-rent-to-own"><strong>Pros and Cons of Rent to Own</strong></h2>



<p>When you want a mortgage, the bank needs to see a history of loans that you've repaid. They can't lend a $100k mortgage out to everyone who asks for one.</p>



<p>So they crunch the numbers on all of the different factors regarding those loans. They look at how long it took you to repay the loan, how much money the loan was for, and the different types of loans (credit card, car, student loans, etc.).</p>



<p>Naturally, this can make it pretty hard to secure a traditional mortgage. Everyone goes through some financial hardship in life. Sometimes that means that your credit has taken a big hit, and because of that, the bank won't let you buy a house without building up your credit score -- which can take <em>years</em>.</p>



<p>When you enter a rent-to-own contract, you don't need to have an excellent credit score -- or any credit score at all. You're making payments to your landlord, not the bank.</p>



<h2 id="h-low-or-no-down-payment"><strong>Low (or No) Down Payment</strong></h2>



<p>Furthermore, the bank requires you to put a large sum of money down to secure a home loan in the first place.</p>



<p>That can make it even <em>harder </em>to purchase a house. As we saw with the recent pandemic, most American families don't even have enough money in savings to cover a $400 emergency. Homeownership is becoming a distant dream for many Americans today.</p>



<p>With a rent-to-own agreement, though, you often don't need any down payment at all. Suppose you can prove to your landlord that you can make the payments (typically slightly higher than the typical rent payment). In that case, your landlord will often count a certain fraction of those payments toward your "down payment" when you decide to purchase the house.</p>



<h2 id="h-cons-of-rent-to-own"><strong>Cons of Rent to Own</strong></h2>



<ul><li><strong>More Expensive Than Renting</strong></li></ul>



<p>Most of the time, when you're entering a rent-to-own agreement, your monthly payment is going to go up.</p>



<p>Rent-to-own makes sense, after all. You're no longer "renting," in the strictest sense of the word. Instead, depending on the contract, you're building up equity in the house. When you finally purchase the home, some of those extra rent payments will go towards ownership.</p>



<p>For example, let's say you're renting your current place for $1,250/month. If you want to enter a rent-to-own contract, your monthly payment might go up to $1,750/month for twelve months. After that period is up, you might have the option of purchasing the house. In that case, the extra $500/month usually contributes to your down payment, so you'll already own $6k worth of the home.</p>



<p>However, contracts vary, so make sure you review precisely how that's going to work with your landlord.</p>



<h2 id="h-you-re-on-the-hook-for-repairs"><strong>You're On the Hook for Repairs</strong></h2>



<p>Your landlord needs to know that you're willing and able to take good care of the property. If a pipe bursts or a gutter falls, you're often contractually obligated to make repairs. That means that regular maintenance now falls on you.</p>



<p>However, this isn't that different from homeownership. When you own a home, you'll often have to make repairs -- some minor and some major. That's just how it goes.</p>



<p>The problem is that when you're in a rent-to-own agreement, you don't necessarily own the house yet. So, when you make expensive repairs that increase the home's value, you don't necessarily reap the rewards of those repairs. You might choose not to buy the house at all, even after you've fixed a part of it up.</p>



<h2 id="h-conclusion-pros-and-cons-of-rent-to-own"><strong>Conclusion: Pros and Cons of Rent to Own</strong></h2>



<p>What are the pros and cons of rent to own?</p>



<p>Well, when it comes to the pros, you don't have to have a credit score or a down payment -- and yet you <em>still </em>get the option of buying your own home. You don't have to work with traditional lenders; you have to work with your landlord. You might have thought that the bank would never give you a mortgage, but with rent to own, you can still fulfill your dream of owning your own house.</p>



<p>As for the cons, your monthly payment will probably go up, and you're still on the hook for repairs. At the end of the agreement, you might change your mind about buying, and that means you'll likely forfeit all of those repairs and extra payments.</p>

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Top 10 questions to ask when Renting-to-Own a home

"Rent to own" has become popular over recent years. Home prices have risen, and first-time buyers find it more challenging to get started on the property ladder...

Does Rent-to-Own Build Your Credit?

A rent-to-own agreement allows you to rent a home for a specified period while providing the option or requirement to buy it before the lease expires...

What are the pros and cons of rent to own?

In this article, we'll look at the pros and cons of rent-to-own real estate agreements so that you can make an informed decision...

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