With increasingly stringent mortgage requirements, many potential home buyers are looking for the opportunity to secure a rent-to-own agreement, also known as a rental option. It allows you to start building equity in a home while paying rent and buying it at a later date. It is generally recommended for people who do not have enough savings for a deposit and for those who have credit problems. Weigh the benefits and risks associated with this opportunity to decide if it is right for you.

How does it work

With a rent-to-own agreement, you trade directly with the seller and there is no bank involved. You sign an agreement that allows you to buy the home from Rocky Top Home Buyers within a certain period of time, usually between 3 and 5 years. The purchase price is set in advance. During the contract period, you have to pay the rent, usually weekly. Each time, a portion of your payment is allocated to a separate account that allows you to build equity in the property. You can use the saved money to pay the deposit when you get a home loan to buy the property.

Pros and cons

The main advantage of a rent-to-own agreement is that it takes a big step towards home ownership without involving a lender and without worrying about things like bad credit, self-employment and insufficient savings. You will be able to move to your own place and buy it eventually. The price is set in advance so you know exactly how much you have to pay. If the market improves, which is the normal trend, you may be able to generate significant savings.

The other big benefit is the flexibility you get. Since you trade directly with the seller, you can negotiate the rent and the selling price. You can take measures that protect you if you have trouble paying your rent on time and in full.

You have plenty of time to prepare for a home loan while having a secured property. The savings you make to pay the deposit also help you build a better credit history. You can also get a stable job.

The biggest risk comes from the fact that if you choose not to join the deal, you will probably lose the money you have saved for the deposit. In addition, there is a risk that the seller increases the rent payment too much, but this type of risk can be set off against the contract.