Are Rent-to-Own Home Loans a Good Idea?
Having a home of your own is a dream for most people. It allows you to be in full control of your space while investing your money in something you can own one day. But buying a home isn’t always so simple. There are a few things you need to have in order to be considered for a home loan by a financial institution. Qualifications such as good credit, a down payment, and consistent income are a few of those things. If your credit isn’t in good shape or you don’t have enough savings, you might not be able to qualify for a home loan, but there are other options available.
Rent-to-own home loans are an option for people who can’t secure a standard home loan. This type of loan, sometimes referred to as a lease-to-own loan, has different terms depending on the circumstance. In general, the borrower will pay a monthly deposit or monthly premium for anywhere from one to three years, and a portion of that money will go toward the down payment. At the end of the term, the borrower has the option to buy the home. It sounds simple enough, but there are some risks with doing things this way.
A standard home loan, like one given by Rivermark Community Credit Union, will provide you the security you need to get the home of your dreams, and you may be closer to qualifying than you think. Speak to a loan agent today to see how close you are to being able to secure a home loan. In the meantime, here are a few reasons why a rent-to-own home loan may or may not be a good idea for you.
You’ll Be Able to Save More Than You Would Rent for Normally
If you’re in the market for buying a home but don’t have the finances to do so, you might be tempted to keep renting until you can save the funds. Renting has many benefits, but it doesn’t help you when you’re trying to save money. The money you’re using to rent could be put toward your mortgage if you were in the position to secure a home loan.
Renting to own is a good way to both save and secure a place for you to stay in the meantime. You have to pay a monthly fee regardless, but with a rent-to-own home loan, you’ll be saving a portion of your rent money, as it will later go on to be your down payment for the home.
It’s Not a Pass for Bad Credit
Some potential homeowners with bad credit can find that using a rent-to-own home loan can give them more time to fix their credit. But it only works if they use that time well. You’ll have to be taking active steps to improve your credit score while you’re renting to own so that it can help you to qualify for the loan you couldn’t qualify for before.
The process of renting to own allows you to put some of your rent money toward living and some toward saving for a down payment. When your lease is up and it’s time to buy the home, you’ll still need to secure the proper funding. There’s no way around getting your credit to good standing. It’s just a matter of how much time you’ll need to do so.
You Must Be Able to Make Monthly Payments on Time
Depending on who your lender is, you may be given a few days’ grace period to turn in your monthly payments. But when it comes to rent-to-own home loans, paying your monthly payment on time every month is crucial. The rules to these types of loans are strict, and not paying by the day your monthly payment is due could cause you to lose your monthly credit toward your deposit. In that case, you’ll just be paying normal rent, and you’ll be a little bit further away from your goals.
If you’re in a place where making payments on time every month won’t be an issue, then renting-to-own can be a good option for you. If not, you should consider renting normally somewhere else until you’re in a better financial position.
You May end Up Paying More Than What the House Is Worth
When you enter into a contract for a rent-to-own lease, you agree to an amount that you will pay for the house at the end of the lease. Your lease could last from one to three years, and while that doesn’t seem like a long time, the housing market could change substantially in those few years.
Though it would benefit you if the house increases in value, it may not be as exciting if the house decreases in value. That’s just a risk you take when you agree to the terms of a rent-to-own loan. The amount that you agree to pay for the house will be the amount that you’re held to when your lease is up, regardless of how its value has changed.
Will it bother you too much if you end up having to pay more than the house is currently worth? If so, consider renting until you’re able to get a home loan on your own. On the other hand, if the house if truly your dream home and you’re committed to calling it your own, it won’t matter too much how much the value changes over time.
Check All Your Options First
Just because you’ve been denied a home loan from one financial institution doesn’t mean you can’t get a home loan from somewhere else. Credit unions, like Rivermark Community Credit Union, are known for working with potential borrowers with a wide range of credit scores. Check with your local credit union to see if you qualify before you try to get a rent-to-own home loan. You may be eligible and able to buy the home of your dreams.