Rent to Own Your Next Home, While You Wait for Your Old Home to Sell
While in some markets, you cannot keep a house on the market for more than a week, in others, selling a home is agonizing. Homes can take months and sometimes years to sell.
Unfortunately, you're stuck in limbo during this time. You need the money from your old home to put a down payment on a new one, but you also have to move now.
You don't need to be renting a home because you have the money to buy one, it's just not liquid right now. What do you do in the meantime?
You shouldn't be living at the mercy of the housing market. So, instead of taking one large step backward by renting, take a step sideways and rent to own.
What Does it Mean to Rent to Own a Home?
Renting to own a home means you can move into a house you want to buy, even if you don't have the money for a down payment, a good credit score or mortgage approval.
You pay rent to the seller each month and you also make a premium payment each month. The premium payment is insurance that you will actually purchase the home. It ensures that you aren't wasting the seller's time. Your premium payments are credited toward your down payment on the home if you buy it. If you don't buy the home, the seller keeps the premium payment.
You also pay a small option fee. This fee goes toward your down payment on the home if you buy and is forfeited to the seller if you don't.
Potential Benefits of Rent to Own
You do rent the home. However, you have a contract with the seller to buy the home whenever you are ready. Therefore, if your old home sells in two months, then you can buy this house in two months. You are not stuck in a lease for a year.
Yes, rent payments with premiums are pricier, but so are moving fees. If you're relocating to a new area, you have to move all of your furniture with you. If you rent one home and then buy another home, you'll have to move your furniture twice. More so, the premiums are just a little bit more than you would have paid on rent anywhere, and you're not locked into paying rent for a year. Honestly, your home would need to take a relatively long time to sell for it to be cheaper to rent a property and then move to a property you purchase. You will save money on moving fees by moving directly into the home you intend to buy.
Additionally, every time you move you have to take the time to pack everything up, which can be a nightmare. You could get around this by never unpacking, but regular leases are about a year long. It will probably be frustrating to live out of boxes for a whole year. Overall, it is easier to save time packing and unpacking by not having to do it more than once.
When you're moving to a new area, you have to take a wild guess about what area you want to live in. If you rent to own a home you intend to buy, you get the chance to get to know the neighborhood before you commit to living there. You can back out of buying the home as long as your contract is a lease with option to buy and not a lease-purchase. That means that instead of being stuck in a mortgage for a house you don't want, or worse, stuck selling another home, you can move on to a different neighborhood with very little loss. In a sense, this is a benefit to buying the home directly.
Why Rent to Own is Worth a Shot
If you're in a spot of limbo between buying a home and selling your old one, rent to own is your best option. You're committing to this home the same way that you would commit to buying one if you had the money. Yes, you're paying rent, but the alternative still involves you paying rent. You're not losing money to rent that you wouldn't have been losing to rent anyway. You're saving time and money on the extra move and packing. You get to know the neighborhood you're living in before you're stuck there. Best case scenario, you get to buy the home sooner than you would if you were trapped in a lease and you have a little more money to put towards a great down payment. Worst case scenario, you don't like the home and you lose your premium payment and option fee. However, that might have happened with any home you could have purchased.
When you weigh out the pros and cons, rent to own is a win-win situation.