When you have bad credit, qualifying for a mortgage can be difficult. Rent to own provides a good option to consider if you want to buy a home. While renting a house in this situation, you’ll be able to work on credit repair, so you can improve your chance of qualifying for a mortgage later on. Learning more about rent to own housing can help you determine if it’s the right option for you.
How Rent to Own Works?
Rent to own involves renting a home for a certain period of time with the option to buy it before or when your lease expires. The agreement for rent to own housing typically includes a standard lease agreement and the option to purchase the home. Contracts are either lease-option or lease-purchase on these homes. Lease-option means you have the right to purchase the property you’re renting, while lease-purchase means you’re required to purchase it.
When you have a rent to own contract, you can expect to pay rent on a monthly basis. Depending on your contract, a percentage of your rent payment might be applied to the home’s purchase price. You’ll also pay an upfront fee, known as an option fee, which is nonrefundable. This fee provides you with the option to purchase the home before or when your lease expires. You can usually negotiate the option fee, which can range from 1 to 7 percent of the home’s purchase price. In some agreements, tenants in rent to own housing are also required to handle maintenance and pay for repairs.
Rent to Own Eligibility
What does it take to be eligible for a rent to own home? This varies depending on the rent to own program you’re interested in. In general, you might need to show proof of income and proof of employment. In some cases, you might be expected to have a certain amount of money in a savings account in order to qualify for rent to own housing. Some programs also have minimum credit score requirements, although keep in mind that it’s typically easier to be approved for rent to own with bad credit than it is to be approved for a mortgage.
Benefits of Rent to Own Housing with Bad Credit
When you’re considering renting a home in a rent to own agreement, there are notable benefits with this arrangement, such as:
- Options for bad credit: Rent to own can give you an option to eventually purchase a home, even if you have bad credit. Mortgages often have much stricter credit score requirements.
- Credit repair opportunities: While renting, you’ll have time to work on repairing your credit before purchasing your rent to own home.
- Lower down payment or purchase price: This can happen if your option fee is being applied toward your down payment or purchase price while you’re renting.
Knowing whether or not rent to own housing is right for your situation can be tough, especially if you have bad credit. Talking to rent to own professionals can help you make the best decision.
