Although buying a condo is a great long-term investment, not everyone has the ability to make such a big-dollar purchase due to credit challenges or insufficient capital. If either or both of these issues applies to you, then entering a rent-to-own agreement with a seller is one way of securing the condo of your dreams. Here's more information about this method of home buying to help you decide if it's right for you.
What is Rent-to-Own?
Rent-to-Own is a type of payment plan where a person rents a property for a specified period of time with the option to purchase the property at the end of the rental agreement. Unlike standard rental arrangements, however, a portion of your rent payment is applied towards the purchase price of the home. For instance, $500 of a $1,000 rent payment is taken off the final cost of the condo.
Although it's not a common way to purchase a condo, it can be a viable path to ownership for people who may be unable to qualify for conventional loans. In particular, people who have poor credit or don't have enough money saved for a down payment may benefit from this type of arrangement. A person with poor credit can work on improving his or her score without fear the home will be bought by someone else. For those that don't have enough of a down payment, the monthly rental payments can help them save up the necessary funds.
Requirements of Rent-to-Own
The exact requirements for qualifying for and maintaining a rent-to-own contract will vary from seller to seller. For instance, some sellers will work with people with really bad credit while others may require prospective owners to have a minimum score of 620. However, there are a couple of general requirements that apply across the board.
First, you will generally be required to pay a non-refundable option consideration fee. You can consider this fee the cost of having the seller hold the home for you and refusing other offers to buy in the meantime. Typically, the fee is between 1 and 5 percent of the purchase price, but this is usually negotiable. Additionally, this payment will be applied to the price of the home when you're ready to buy it. If you decide not to go through with the sale, the fee goes into the seller's pocket.
Second, you will be responsible for maintaining the condo throughout the rental period including paying any fees assessed by the condo association. In a regular landlord/tenant situation, the landlord would be responsible for making repairs in the home and paying these fees. However, since you are optioning to buy the condo, that responsibility will typically be placed on you.
This is where a rent-to-own option can quickly become a disadvantage. If you invest thousands of dollars into fixing problems in the condo and the deal falls through, you may be out that money. Therefore, it's important the contract you sign includes some type of reimbursement for those repairs in case the seller breaks the contract or otherwise doesn't follow through with letting you buy the home.
Ideal Circumstances for Rent-to-Own
While anyone can enter a rent-to-own agreement at any time for any property, this type of home buying typically works best when you have a seller who is not in a hurry to get rid of the property. A condo owner who wants to sell the property fast may not give you enough time to resolve the issues prohibiting you from buying the property outright. For instance, the owner may want you to buy the condo after one year of renting, which may not be enough time to get your credit fixed enough to qualify for a loan.
Along those same lines, you must be able to fulfill the contract within the specified period of time. If the rent-to-own agreement gives you three years to purchase the condo, then you have to make sure you can follow through. Be certain to take other things into consideration such as your job and relationships. For example, if your parents aren't in good health and there may be a chance you'd have to move into their home to care for them, then making a commitment to a rent-to-own contract may not be the best option.
For more information about rent-to-own condos, contact a real estate agent to discuss your options or help you find the right home for you out of all the condos for sale near you.