As is the case with many homebuyers, you’ll probably need a mortgage to buy a new house. To qualify for a mortgage, you’re going to need money for a down payment, a positive credit score, and money to make a down payment.

Without meeting these criteria, the traditional approach to homeownership might be very difficult to pursue.

However, there is another route you can consider; a rent to own agreement.

What Is a Rent-To-Own Home Agreement:

A rent-to-own arrangement, otherwise referred to as a lease-to-home, is a common rental agreement in slow real estate markets where homeowners can’t just sell outrightly.

The working idea behind renting-to-own is simple. You and the homeowner negotiate an excellent price for the home and pledge to buy the house within a set time. Until then, you’ll pay rent as a tenant.

In some cases, the tenant pays an added premium known as an option fee. The option fee is on top of the monthly rent, and it goes toward reducing the selling price of the house during the time in which you will have leased the property (usually one to five years).

The option fee is sort of like a down payment and is, more often than not, nonrefundable. After the time has elapsed, you will have an option to buy the home at an attractive price.

However, some landlords make it obligatory for the tenant to buy the house after the lease period has expired. It all depends on the agreement you settle with.

So, What Do I Need to Qualify for a Rent-To-Own Agreement:

Being deemed eligible for a rent-to-own property involves similar criteria as qualifying for a traditional mortgage. However, the requirements may be a bit more lenient in a rent-to-own agreement since qualifications depend on the seller.

The point of a good rent-to-own agreement is to negotiate so that both the buyer and current homeowner are happy.

Nevertheless, the following might be required:

  • Proof of stable income to assure the homeowner that you can afford the monthly rent
  • A credit score decent enough to qualify for a mortgage within the lease time
  • A clean background check to ensure that you are of honest character and that you will act according to the agreement

Winding It Up:

A rent-to-own strategy may be of great benefit to you, depending on your needs and financial situation.

For starters, it’s an excellent solution for people who would otherwise find it difficult to qualify for a traditional mortgage loan. It would give them the time to take the right measures to make themselves seem a lot more attractive to mortgage lenders. This includes building their income and credit or saving up for a deposit.

It also allows them to lock in a buying price for the house on contract. This can be especially beneficial when home prices in the market increase.

However, bear in mind that you might have to pay more in rent. Home prices could also fall, meaning you’ll have to pay for more than the property is worth.