Getting Into Your First Rent-To-Own Home?
Also known as a lease-to-own or contract for deed, a rent-to-own home allows you to start paying towards the home purchase while you rent. When the lease ends you will have saved up credit that reduces the purchase price. What an exciting feeling to finally own your own home!
However, once you move into a rent-to-own home, what should you be mindful of? Here we have put together four tips to help ensure your successful transition to becoming a homeowner.
Tip #1 Don’t neglect repairs
It’s easy to make the mistake of assuming a lease-to-own or contract for deed is like a standard rental contract, where the landlord is responsible for repairs to the property. However, rent-to-own arrangements will most likely include caveats that the tenant maintains the property and makes repairs as needed.
This is understandable, given it will one day be your property and you can make sure repairs are completed to your approval. However, where some lease-option tenants go wrong, is that they fail to accommodate for these repairs in their monthly household budget, due to having a landlord responsible in past rentals.
It is important to establish a small ‘emergency cash fund’ to ensure you are not scrambling to pay for a burst hot water tank or furnace breakdown, for example.
Tip #2 Don’t forget to save in addition to rental payments
In a contract for deed or lease-to-own, a portion of your monthly rent will go towards the purchase price of the home as credit. It can be easy to ‘set and forget’ this. However, it is important to save towards purchasing the home outside of the rental contract.
Rent-to-own arrangements do not omit the down payment on the house, they are a ‘bridging loan’, helping you live in your chosen house until a mortgage with a lender is secured. You will still need to produce a down payment when the lease period is over.
Tip # 3 Don’t fall behind on lease payments
It’s important to be mindful a late payment could mean you are voiding your rent-to-own contract. In a standard rental contract, a one-time late payment may only be met with a late fee.
In rent-to-own agreements, despite the likely situation that the landlord is forgiving and waives the fee, it may still result in a void in contract and you could lose the right to purchase.
One of the best ways to guarantee your rent is paid is to set up a schedule of automatic payments from your checking or savings account on the same date every month.
#4 Don’t treat a rent-to-own like a standard rental
This is the best part of a rent-to-own home- it’s yours! Knowing that you will be purchasing the house can be an incredible feeling.
It also means that you are free to decorate it, remodel, or upgrade it as you see fit. No longer do you need to worry about nailing a picture hook to the wall and losing your deposit.
Lease or rent-to-own agreements are an accessible gateway to homeownership, empowering people to create their own legacy. It is important to enjoy your home from the day you move in and make it your own.
#5 Don’t spend money on furnishings
Many individuals think that a new home means it needs new furniture, artwork, and more. This is not going to set you up for success long-term.
You likely used what funds you had to get yourself into the home and it may seem tempting to use a credit card or the last of your savings on a new couch, new bed, new shelving, or new appliances. No matter the justification you use for yourself it will never help you in the long run.
Bring what furniture you have and if you have EXTRA discretionary funds beyond 6-month savings and emergency funds you can spend a little bit here or there to make upgrades.
Use these tips to get the best chance at becoming a homeowner!