What are the disadvantages of rent to own homes?

<<>> Rent to own homes help renters become home owners, but sometimes it could be the worst decision that you've ever made.

Renting a home for a year and buying the home after you’ve lived in the home is appealing for many people. First you can structure the down payment so that you pay your rent and portion of your rent is paid toward your down payment. Let me tell you the main disadvantages.

One of the disadvantages is you are trusting that the owner will keep a portion of the money you are giving him/her and allow you to use this money for a down payment. If you do go this route, make sure that you go through a title company or other third party to protect your investment. After the agreed upon time, the down payment is used to refinance the home into your name.

Another disadvantage is that if the owner does not pay his mortgage payment, the home you are renting may be taken from the owner. In this case, you could lose your home. In most cases, you will lose all of the money that you’ve been providing as a down payment.

If contract prices are set and home values are going down, then when you refinance the home into your name, you may have negative equity in your home on the first day. Many times the bank will require you to put more money down in order to meet their lender guidelines.

Sometimes the owner has already tried to sell their home via traditional methods, however the home would not sell on the open market because of a strange floor plan, non-functional heat source, maybe the price is too high or some other form of external issues such as the transmission towers located in the back yard. If you purchase a home via a rent to own, make sure that you’re not buying someone else's mistake. Looking through the glass window from my appraisal business, I see this happening all of the time. In conclusion, for the buyer, it’s not really a good option in most cases, because there are too many variables that can not be controlled.

What are the advantages of rent to own homes?

The main advantage of this is that you do not have to have your down payment before you move in. When money is difficult to save and home prices are moving up at a significant amount every month you will be required to save a certain percentage. If values are moving upward at a fast rate, you will not be able to save up for a down payment before the market increases again.

If home values are moving upward and you set the contract price a year or two ago, then there is a good chance that you will purchase a home for less than market value when you are ready to buy, if you’ve locked the price in at this time. I’ve personally seen several cases like this when the market was increasing. In this case, you could get instant equity when you purchase the home.

Many times, renting a home is appealing for those people that don’t have good credit or can’t get into a home via a traditional mortgage. They will rent the home and fix their credit so that they are ready to buy a home within a few years.

If you’ve just moved to a new area and you’re not sure, but you’re really think you want to buy, rent to buy. If you don’t like the area or the house after a year, you don’t have to buy. Sure, you will lose additional money, but many times this will be better than buying home that you can’t easily move out of without selling.