Despite a welcome decrease in the interest rate this year, mortgage rates remain prohibitive for most home buyers. So, if you're in the market for a new property, you're likely open to ideas to help you get there.
Rent-to-own homes might offer the solution you need. This process is more complicated than renting and selling a home, but it can help you secure a property in Littleton's competitive housing market.
Read on to find out more about this home-buying process and whether it could help you secure a home faster.
How Does the Rent-to-Own Process Work
Rent-to-own agreements differ from conventional lease agreements in that the tenant has the opportunity to own the home at the end of the lease term. There are two types of rent-to-own leases, namely:
- Lease-option contracts
- Lease-purchase contracts
Lease-purchase contracts compel you to buy the home at the end of the lease, while lease-option contracts give you the first option to buy the home. In Colorado, these agreements must comply with certain legal standards.
Tenants usually pay a non-refundable fee, called the option fee, at the beginning of the lease. This fee is negotiable, but it is typically between 1% and 5% of the property purchase price.
After that, the tenant pays monthly rent like any other tenant, except a portion of these payments can count toward a down payment on the home. If you decide to buy the home, any excess money counts toward the purchase price.
These types of agreements can vary widely, so it's important for both the buyer and seller to get legal advice before originating and signing the lease.
Pros and Cons of Rent-to-Own Homes
Lease-to-own agreements are an attractive option for those who find themselves excluded from the traditional home-buying process.
These homeownership options help aspirant homeowners to:
- Save for a down payment
- Strengthen their finances before buying
- Lock in a purchase price
- Avoid moving at the end of the lease
Unfortunately, there are also a few negatives associated with these sales. These include:
- Paying higher-than-average rent
- Extra fees, i.e., option fees
- No guarantee of financing
- Additional costs
Buyers who purchase via a rent-to-own agreement still need to pay the usual closing costs and may also be required to pay for maintenance and repairs on the property from the outset. Other costs may include property taxes and homeowners insurance.
Maximize Real Estate Market Trends
Rent-to-own homes are a good choice for buyers who've found their ideal home before they're financially capable of buying it. Yet, it can be expensive, especially if they change their mind about buying the property.
It's always best to consult a property expert when making home-buying decisions, and PMI Little Town has got your back when you're looking to invest in Littleton real estate.
Our accomplished team is well-versed in the intricacies of rental agreements and property management. Together, they have decades of combined real estate experience to guide your property decisions.
Browse our blog for more real estate advice and property investment strategies, or ask us how we can help you make the most of your home.
