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The Pros and Cons of Renting to Own

By Tiffany Raiford

Perhaps you've heard the phrase rent to own bandied about. It's not a term many people were familiar with just a few short years ago, but since the downfall of the economy it's become a much more common phrase. A rent to own property is one in which you rent a home from a seller with the promise to find the funding necessary to purchase the home outright within a certain period of time. Many people are choosing to go this route, but before you make a financial decision this large it's important to understand both the pros and cons of renting to own.

The Benefits of Rent to Own

For buyers, the benefits are numerous. For one, you can lock in the price of a home right now, and pay it down over a set time. This means that you'll pay this amount even if the market changes and the home is worth much more at that point. Additionally, it provides you with extra time to live in the house and "try it on for size" while saving money to use as a down payment or to repair your credit history in order to qualify for a home loan. And unlike a traditional rental, you're building equity in the home with each payment.

For sellers, the benefits are also decent. You will have a long-term renter that you will not need to worry about leaving your home after their short contract is over. Additionally, you will also have a guaranteed buyer in a market that is still rebounding. Your renters are personally vested in your property at this point since they want to purchase it, which means they're less likely to do any damage to your home.

Downside of Renting to Own

For buyers, the downside is that you might decide you do not want to or cannot purchase this home at the end of your contract. Since rent to own properties come standard with an agreement to pay a bit more in rent than you typically would, you might lose money. For example, if your rent is $750 per month and you agree to pay $1000 with the extra $250 being put aside toward the purchase of your home for three years, you won't get that $9000 back if you choose not to purchase the home.

For sellers, the downfall is that you might actually end up with renters who choose not to buy, which means you have to list your house for sale again. This can sometimes be a tedious process many sellers wish to avoid, so it's an obvious con to renting your house to own.

Every choice in life comes with pros and cons. Your job is to choose which one is more convenient and appropriate for your circumstances, and make your decision in that manner. What's right for you might not be right for someone else, which is the benefit of making a pros and cons list.

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