Top problems that rent-to-own tenants face
At first glance, a rent-to-own deal seems to be an ideal option as it combines advantages of both renting and selling a house. As a tenant, part of the monthly rent you pay goes towards purchasing the home you are already living in. While you have already prepared to pay a monthly rent that’s higher than the market rent price because part of the rent goes towards your down payment, there are actually several other issues that can cause you problems which you might not have anticipated in the beginning.
Renters with punctuality problems are at a disadvantage in rent-to-own agreements. Most contracts don’t allow late payments to be credited to the deposit. Regardless how close you are to the end of the agreement, the landlord still takes full ownership of the property if you miss a payment, and the amount you have built up for the down payment is forfeited. Most of the time, rent-to-own tenants don’t have legal options to recuperate their investment.
Rent-to-own agreements also make the assumption that the tenant would have built up good credit history to qualify for a mortgage, or have saved enough to pay for the full down payment at the end of the lease period. Know the exact amount you would have accumulated for the down payment by the end of the lease and make sure as well that you will be able to meet the requirements to qualify for a mortgage.
Another problem that rent-to-own tenants face is the risk of the property value dropping. This makes you stuck into paying for a house at an inflated price especially if you’re already towards the end of your agreement and have accumulated majority of the down payment and option fee. Research home prices to find out if the property is worth the price you’re paying for. A rise in the value of the property can also be a problem to the tenant especially if the contract allows the landlord to terminate the agreement for this reason. In the case of an increase in house prices, it is possible for the landlord to renege on the contract especially if they have found another buyer and sell right away at the increased market value.
The landlord’s financial standing can also be a problem for the tenant in a rent-to-own agreement. If the landlord falls behind on a mortgage payment and loses the house, the tenant may probably lose the option to buy as well as all of the accumulated rental payments intended for the deposit. Ask for the house’s title records as well as mortgage statements to make sure that the house is really the landlord’s to sell and how much is owed on the property. Aside from mortgage payments, look into the property tax payments as well, otherwise you might be obliged to pay back taxes just to not lose on any amount you have already invested.
Home maintenance and repairs can also be a problem for the tenant once they move in. Unlike straight up home rentals, rent-to-own landlords don’t fall under the legal requirement to ensure the place is habitable and to undertake maintenance and repair work.