Five Common Misconceptions about Rent to Own Homes

The Great Wall of China is often claimed to be the only human-made structure visible from space, but that is not entirely accurate.  Actually, seeing the Great Wall with the naked eye is challenging unless conditions are perfect. Even astronauts on the International Space Station, around 200 miles above the ground, can’t see it without special equipment. While many people have a misconception about the Great Wall, the misconception doesn’t really impact their daily lives. However, misconceptions with rent-to-own homes can greatly affect aspiring homeowners’ journey towards homeownership and financial security.

Some people mistakenly believe that rent-to-own homes are scams, but that is false. Many individuals have successfully become homeowners through rent-to-own arrangements. According to a report by Moody’s Analytics, certain rent-to-own firms boast an impressive 40% success rate in helping renters become homeowners. Some renters choose not to own due to reasons like changes in their financial situation or desirability of the home.

Nevertheless, there are dishonest sellers and landlords who perpetuate five common misconceptions about rent-to-own homes, giving renters false hope while charging higher rents. It’s important to understand what those misconceptions are.

1. Rent-to-own home is the best way for renters with poor credit to own a home.
   This isn’t always true. Rent-to-own homes can be a good choice for some people, but not always the best one. Rent-to-own homes can be more expensive than traditional rentals due to option fees and a rent premium, which serves as a form of savings toward the eventual purchase of the home. Some individuals will find rent-to-own homes as a good opportunity to get into a home sooner than later.
2. Rent-to-own homes are a great deal because you build equity while renting.
   The equity you can build in a rent-to-own home depends on the agreement’s terms. If the purchase price is set at fair market value, you may not accumulate much equity while renting. It is crucial to thoroughly understand the agreement before committing, including what happens if the home’s value decreases.
3. Rent-to-own homes always offer good deals on the properties.
   This isn’t always the case. While you might find a good deal in some instances, it’s not guaranteed. The purchase price to buy back the home depends on factors like fair market value and the terms of the agreement. Make sure the purchase price is reasonable, as an excessively high or low price can indicate potential scams.
4. Rent-to-own is a guaranteed path to homeownership.
   A rent-to-own agreement provides an opportunity for homeownership, but it doesn’t guarantee mortgage qualification or financing in the future. It’s important to focus on improving your credit score while renting the home to increase your chances of qualifying for a mortgage when the time comes.
5. Rent-to-own contracts provide flexibility to walk away without buying the home.
   Most rent-to-own contracts fall into two types: lease options and lease purchases. A lease option gives you the choice to buy the home in the future, while a lease purchase requires you to purchase it. Therefore, a lease option contract provides the flexibility to walk away. Carefully review the contract terms and seek clarification if needed.

If you are considering a rent to own home, make sure you don’t have an incorrect expectation of them. It is important to do your research and understand the risks involved. You should also be prepared to walk away from the deal if it is not a good fit for you. Here are some tips when considering a rent to own home.

• Do your research:
  Learn as much as you can about the landlord or seller offering the rent-to-own home. Do they have a proven track record, are there any complaints about them, do they actually own the property?  Alternatively, work with a trusted firm that has a proven track record with rent to own homes, such as Upwardly.
• Scrutinize the rent to own contract thoroughly:
  Make sure you understand all of the terms and conditions of the agreement before you sign it. What happens if you do not decide to buy the home, is there a penalty, do you get any option credit back? Pay attention to aspects like the purchase price, option fee, lease term, maintenance responsibilities, and the consequences of defaulting on payments.
• Be prepared to walk away:
  There is not a standard rent to own agreement. Negotiate with the landlord, seller, or firm for better terms. If the rent to own agreement is not a good fit for you, be prepared to walk away from the deal and look for another place to rent to own.
• Look for alternatives:
  Maybe the path to ownership is to rent a more affordable place, save up for a down payment, and improve your credit score. Rent-to-own home is one path to homeownership. There are other options out there that may work better for you.