Gone are the days when home ownership was the ultimate marker of success. The rising costs of purchasing a home as well as concerns about the economy have led to fewer Americans becoming homeowners. In 2022, there is also a challenge with finding a home in the present housing market due to low inventory. A house listed today will likely be gone tomorrow, sold for double the asking price due to bidding wars between prospective buyers and limited home inventory.
Before you continue, it’s important to know that there are all kinds of incentives and help for first-time home buyers. If that’s you, you’ll definitely want to click here to see what you qualify for– trust us, you don’t want to miss out on this.
Rent to Own Versus Purchasing Outright
Many people don’t know that a rent to own home is an option. As you learn more about the differences between renting versus purchasing outright, a good first step is to see if you qualify for a rent to own home right now. Click here to check– you might be pleasantly surprised to find out that you can get into a rent to own home.
According to Fortune, there is a benefit to the higher interest rates that the Federal Reserve implemented earlier this year to fight inflation. “As home shoppers temporarily delay their purchase in the face of rising rates, that gives inventory the breathing room it needs to rise. When those buyers reenter the market, in theory, they return to find inventory higher and feel less pressure to overbid.”
Higher rates have allowed the housing market a little bit of breathing room, but the inventory is still lower than pre=pandemic levels in 2019, and buyers may lose out on their mortgage loan if their debt-to-income ratio does not fit the strict criteria of qualifying.
There are avenues to homeownership that don’t necessarily fit the traditional journey. One option that many Americans may consider is to rent-to-own agreements. Renting to own a home is an alternative to purchasing it outright that lets you live in a home over time. Rent to own can help you to create positive credit history and build up a down payment for buying a home on your own.
However, just like taking out a mortgage, it’s important to understand the risks involved when you rent to own a home. These risks include the risk of losing your initial investment, being evicted from the property prior to repurchase due to missed rental payments, being unable to qualify for a mortgage loan at the end of your lease, or missing out on other opportunities to buy the property after you sign the lease agreement.
So, which choice is best? Both options have their advantages and shortfalls, especially in the current housing market.
The Pros of Purchasing a Home
- It provides a sense of accomplishment, security, and community.
- You are building equity over time.
- You have a say in the design and look of the house.
The Cons of Purchasing a Home
- The housing market fluctuates quite a lot and you could potentially lose a lot of money on your investment if it stalls or crashes.
- It requires a lot of financial strategy and time to be approved for a mortgage.
- You are responsible for all the repairs and maintenance of the house and property acreage.
- Moving is a lot more difficult.
The Pros of Renting to Own a Home
- The freedom of being able to move at the end of the lease with an option to buy agreement.
- The rent will not increase or decrease over the initial agreement of the lease.
- Unless your lease requires it, the seller or landlord will be responsible for maintenance and repairs.
- You can try out the community before deciding to purchase the house,
- The purchase price is fixed at signing the lease and depending on the housing market, you may be saving thousands of dollars when it comes time to buy the property.
The Cons of Renting to Own a Home
- You may be unable to qualify for a mortgage at the end of the lease agreement; if you signed a lease-purchase agreement, you could be sued and/or have to purchase the house whether you can afford it or not.
- You are not the homeowner and that may be a negative feeling as you pay rent.
- The seller could pocket your rental money and send the property into foreclosure while you are under contract.
- If you default on the lease agreement by not paying rent even one time, the option to buy will likely be void.
- You may not be allowed to have pets during your lease agreement.
- You could be responsible for property taxes, repairs, HOA fees, etc. if the lease requires it.
Note: Whether you plan on going through with a rent to own home or not, it’s a good idea to check to see if you qualify for one so you know where you stand. Click here to start the qualification process quickly and easily.
While they are both viable housing options, purchasing a home is usually going to be the more affordable option overall. The cost of a rent-to-own loan can be significantly more expensive than a traditional mortgage loan over time considering the amount of rent you’ll be paying every month, the deposit, the option fee, and is responsible for repairs if the lease requires it.
There is also no guarantee that you will be approved for financing when it comes to the end of your lease agreement and if you signed a lease-purchase contract, you could be legally liable to purchase it whether you can afford it or not.
However, rent-to-own homes may give you what the purchasing home outright won’t: time. Time to build your credit, put money away for a down payment, and get used to the feeling of being a homeowner while you rent. Home prices on average continue to rise, but financing used for rent-to-own homes is often fixed rate, so it cannot keep up with rising home values.
Ultimately, only you can decide whether buying or renting makes sense for your situation. Your finances, lifestyle, and personal goals will weigh the most into your decision. Consult friends and family, do your research, and consider hiring a realtor to guide you through the process, Homeownership is a worthwhile goal for many people, but for some, it may take some extra time and steps!