Rent to Own: A Risky but Viable Option in the Housing Market

While the traditional concept of rent-to-own is well known, there is a unique twist emerging in the housing market: taking out a mortgage for a property you can actually afford, but over a longer term, like 25 or 30 years. With a decent down payment, your monthly mortgage could be comparable to or even less than renting, allowing you to live comfortably while you build equity.

Is Rent to Own a Viable Option?

Indeed, rent to own is a thing, but it comes with significant risks. One major issue is whether the property will be recorded in your name. If not, you face serious legal and financial pitfalls. I once encountered a case where a property was foreclosed despite the owner paying a whopping $55,000 per month in rent. This happened because the buyers did not have any rights to the property since it was not in their name, and they signed a contract without the help of an attorney or realtor.

Even if the seller is foreclosed on, buyers have no legal recourse, even if they have paid substantial amounts. Therefore, if you decide to proceed down this risky path, it's crucial to have an attorney draft a contract that protects you and ensures the mortgage is always paid on time.

Steps to Safeguard Yourself

Buying a home through a rent-to-own agreement can be a complex process. It is often a lease-option-to-purchase arrangement, where the buyer pays a down payment, usually 25 percent of the purchase price, and a financial addendum is drawn up. This document includes terms like the duration of the lease, the agreed-upon purchase price, interest terms, late payment penalties, and even the option of being placed on the deed.

Important considerations include what happens if you fail to meet the terms of the agreement. In such cases, the seller has the right to keep all the money and reclaim the property. The term 'rent-to-own' is much more complex in most transactions, and seeking professional advice is critical.

Alternatives to Rent to Own

The best approach is to get yourself qualified to purchase the property outright. There are options for those with little or no money, often involving working with a realtor. A realtor can help you understand your financial situation and find the best path to homeownership, whether it's through traditional financing, a rent-to-own arrangement, or another alternative.

In conclusion, while rent to own can be a viable solution for those who can afford the monthly payments and are willing to take on the risks involved, it is undoubtedly a complex and risky endeavor. Always consult with a professional to ensure you make an informed decision that protects your interests.