When it comes time to buy a first or new home, things can get expensive quick. Buying a home requires several up-front fees:

• Down payment
• Closing costs
• Inspections
• Insurance
• Agent fees

Even maintenance costs come into play in the beginning. Each family is different and some changes are inevitable.

If these upfront costs have your head spinning, there is another possibility. Some sellers offer rent to own agreements, allowing you to spread out the costs. This options also allows you a little more time to make a final decision.

With any agreement, there are pros and cons. What are the pros and cons of rent to own homes?

Before you can understand the pros and cons, it’s important to understand what rent to own means.

What Is a Rent to Own Home?

When you agree to a rent to own contract, you’re agreeing to rent the house with the option of purchasing it at a later date. As you pay the monthly rental fee, at least a portion of this goes towards the later purchase. This means the final purchase price decreases throughout the rent or lease period.

While there is less upfront cost with a rent to own agreement, there are some upfront fees.

The most common fee is the option deposit. This deposit is paid as a security towards the possible purchase. If you don’t end up purchasing the house, you don’t get that deposit back.

The deposit can range anywhere from 2.5-7% of the purchase price. Many times part of this deposit can be used towards the final purchase, so it gives an incentive to buy so you don’t lose that money.

Rent to own agreements are highly negotiable. The seller and buyer can work out details regarding the responsibilities of each during the rental period. They can work out payment options and final purchase options as well.

This flexibility makes rent to own worth checking out for many people. How do you know if the agreement is right for you though?

The Pros and Cons of Rent to Own Homes

As with any rent or purchase agreement, there are pros and cons to signing a rent to own agreement. Before making a decision, you need to weigh the importance of the pros and cons of your situation.

The Pros of Rent to Own

There are many benefits of rent to own agreements. One of the biggest rent to own advantages is the decreased financial burden for a first-time buyer.

A Good Option for Someone with Bad Credit

A rent to own agreement gives you time to build up your credit so you can get a loan to pay down the remaining purchase cost. Since at least a portion of your rent payment goes towards the purchase price, the amount needed for a loan also decreases. This gives you options while you fix your credit.

No Property Tax Obligations

During the rental period of a rent to own agreement, the seller is still responsible for paying property taxes. While people don’t always think about it, property tax is one of the largest expenses for homeowners.

You don’t have to worry about this expense during the rental period, allowing you to build up money for the purchase. Just keep in mind, once you make the purchase, that tax obligation will transfer to you.

Fixed Pricing

The rent to own agreement includes a final purchase price. The good thing about these agreements is this final price can’t be changed by the seller once the agreement is signed. This means the price you owe stays the same throughout the contract.

It’s not just the final price that’s fixed. The rental payments agreed on will stay fixed throughout the agreement as well. This means no price increase can show up to take you by surprise.

Time to Make a Final Decision

A lesser financial burden isn’t the only advantage. Purchasing a home is a big decision. With a rent to own agreement, you have time to decide if the purchase is right for you.

Since you’ll live there during the rental period, you have time to check out the house and make sure there are no surprise issues. Since every family is different, you may have an issue with the house that the seller never saw as a problem.

The Cons of Rent to Own

While there are many benefits of rent to own, there are also some disadvantages to these agreements.

Losing Money if You Don’t Buy

If you decide the house is not right for you, you’ll lose money on a deal like this. The security deposit and rent payments are non-refundable. While it’s great for the purchase, it’s a complete loss if you don’t buy.

Fixed Pricing

While fixed pricing can be a pro, it can also be a con. If the property value decreases, you’ll still have to pay the original price. Unlike a normal rental agreement, you cannot negotiate payments once the agreement is signed.

The Property is Not Fully Your Own

Until you make a final decision to purchase, the property still remains in the hands of the seller. This means you don’t have full say on what to do with the property. Before making any changes, you would have to get permission from the seller.

While you don’t have full say, you may still be responsible for some of the maintenance costs. This is why you need to read any contracts carefully.

There are Some Shady Practices

While most people just want to sell the home, there are shady characters out there. If you’re not careful, you can end up with a huge burden without a lot of benefits.

It’s always a good idea to hire help when making any payment decisions. Bringing an agent with you can ensure you’re not cheated in the agreement.

Is a Rent to Own Home a Good Idea?

So, is a rent to own home a good idea for you? If you’re careful with the contract, there are some benefits of rent to own. If you think this is a good idea for you and your family, you want to find an agency that will help you get the best deal.

When looking for rent to own homes, don’t leave things to chance. Be informed and get all the help you can.

Weighing Your Options

Now that you understand the pros and cons of rent to own homes, it’s time to decide if the pros outweigh the cons. It is an important decision, and you should stay informed of all your options.

For more information about your purchase options, check out our home buying guides to help you make the right decision for you and your family.