Rent to Own vs. Plain old Renting

Rent to own is a leasing agreement where a tenant makes monthly payments to the landlord over a period of time, usually 3 to 5 years with the goal of purchasing the home at the end of the lease. The rent to own agreement has 3 sections;

  • option fee, which is your deposit
  • base rent
  • rent premium, which goes towards their down payment

Now the question that everyone asks, “why rent to own, when you can rent?” The question should be “Why rent, when you can rent to own!”

Why rent to own instead of just rent? The answer is equity. When you simply rent a home the traditional way, you do pay the initial deposit, monthly rent and extra for utilities.

But you receive nothing in return, 0% ownership and 0% equity and a place you can call home for a short period, which is determined by the landlord.

On the other hand, in a rent to own agreement you pay monthly base rent, a monthly rent premium and an option fee that you can use towards the cost of your down payment. Therefore, it’s not money wasted, it’s money that you will get a return on by receiving ownership of the home, the increase in the equity is yours and you have a place you can call home, until you decide to move.

Renting to own brings you one step closer to becoming a homeowner, it gives you time to save for the initial down payment on your home or improve your credit. Down payments are large amounts of money, paid lump sums and can be worth 20% of the purchase price or more. Therefore, renting to own helps you kickstart your savings for your down payment.

There are several reasons why people choose rent to own vs renting. A few reasons and usually for majority of the cases, it is due to poor credit, insufficient savings and low income. With poor credit, regardless of your income, you won’t be able to buy a house with a decent interest rate right off the bat.

The rent to own process takes about 3 to 5 years, in this time the buyer is able to build equity in the home while also building their credit, saving for that huge down payment and work out personal day to day finances and running’s of a house.  

In the long run, if home ownership is your goal but your credit and finances are holding you back, then rent to own is the option for you. If you are able to accumulate enough capital by the end of the leasing term to put down towards your down payment and become eligible for a mortgage, then you have the choice to purchase the home of your dreams.

With Rent to Own Today, we get you in touch with a broker, who works with you to meet your credit and down payment requirements and gets you closer to achieving the homeowner dream.

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