Tired of paying someone else's mortgage?

Rent-to-own homes are a good choice for renters who know that they want to save up to purchase a home, and do not want their rent payments to go to waste. It might be because the renter isn't able to afford the home at the moment, but after a few years they expect to have saved enough to afford a home. It might also be because they have a poor credit score or a low income, which will make it more likely that they will be declined for a mortgage.

Rent-to-own gives renters the opportunity to build up their savings, both directly through rent credits which will eventually be applied towards the home purchase, but also indirectly through more time. Making regular on-time rent payments will also help to increase renter’s credit scores and help them to have a required credit score to get a mortgage. This may increase the likelihood of approval for a mortgage, or access to more favourable mortgage rates. You can also use a rent vs. buy calculator to see which one is better suited for your financial situation.

Rent-to-own does have restrictions compared to purchasing a home outright. The property is still owned by the landlord, which means that you will have to follow the rules that the landlord has. Violating your lease, such as having pets when your landlord does not allow pets, might mean that your right to purchase agreement will become null and void, meaning that you will lose your option fee and rent credits deposit.

 Renting to own a home involves two sets of contracts: a rental agreement and a rent-to-own agreement. Rent-to-own differs from regular rentals due to the addition of a rent-to-own agreement, which can be either a lease-option agreement or a lease-purchase agreement.

• Lease-Option Agreement: Also known as option to purchase agreements, you are given an option to purchase the home in the future, however, you are not obligated to purchase the home. This means that you can choose to walk away at the end of your lease without any additional penalties.
• Lease-Purchase Agreement: In a lease-purchase agreement, you agree to purchase the home at the end of your lease. Failure to purchase the home, such as if you are not able to qualify for a mortgage or if you have changed your mind, can result in penalties.

Whether you sign a lease-option or lease-purchase agreement, an agreed-upon portion of your monthly rent payments will be accumulated to be eventually applied towards the principal of the house. These are known as rent credits. You will lose the rent credits that you have paid if you do not purchase the home. Your agreement will also set out terms such as the purchase price of the home.

When you rent to own, you are locking in the purchase price at the time the agreement is signed.  This allows you to potentially gain equity in your home during the rental period.

Especially with current housing prices, having a solid purchase price can be extremely beneficial. For a rent-to-own contract, buyers can lock in a purchase price for when they eventually buy the property.

Even if the monthly payment is high or the locked-in purchase price is a bit higher than the average home price at the moment, it can be beneficial to have a secure price in case the average rises. This can help buyers avoid any raised prices due to rising Federal Reserve Bank interest rates or the market gets hot.