A common misconception about rent-to-own homes is that because you are renting-to-own, you do not need to worry about budget and finances as you would with a home purchase. A rent-to-own home is a contract you sign which may require you to one day purchase the home. This also includes stipulations such as deposits or higher-rent, which are credited toward the price of the home. Due to this, ensuring you have a successful budget prior to signing a rent-to-own contract is essential.
Budgeting StrategyIt's important to set up a strategy for successful budgeting, and then make sure you stick to that strategy. Developing a strategy will help you plan for the purchase of the home, and will ensure you choose a home that not only fits your lifestyle but also your budget. One of the first steps when leasing-to-own a property is figuring out just how much home you can afford.
Determining AffordabilityBecause figuring out how much you can afford is an essential first-step in the lease-to-own process, it's important to approach this wisely. Do not assume that the monthly rent will be similar to rent you are currently paying. Often times, lease-to-own rents are higher to provide the tenant with credit toward the final purchase price of the home. A good way to consider how much you can afford is to determine how much you can expect a lender to provide you at the end of your lease.
Market ConditionsIt's important to consider the current housing market when entering a lease-to-own contract. The current housing market can affect a lease-to-own opportunity in a variety of ways. Since you will one day be required to purchase the home, you want to make sure you are buying a home that will retain or grow in value over the years. This is an important investment. Because leasing-to-own often locks in the house at the current rate, you may have an excellent deal down the road as other houses in the area have risen in prices. Alternatively, if the area has lowered in value and you are paying more than similar homes in the vicinity, you may have a difficult time acquiring a loan.
Down PaymentLike a real estate purchase, a lease-to-own often requires a down payment. Generally this is a low amount, around 3% of the property's value. However, this can be substantial depending upon the property and location you are purchasing in. Generally, a seller will be able to structure the lease to help you get into the home and further develop your financial profile or rebuild your credit score, but it's important to be able to come to the table with a good offer that will help you seal the deal.
Once you have your budget set, you can begin seriously looking at lease-to-own home opportunities in your area. We wish you the best of luck moving forward!