House prices continue to rise steadily across the United States, as do mortgage rates. Competition is still fierce in various markets, while some try to “lock in” the best rate possible before the Feds raise it again. The increase in mortgage rates alone could start to price some hopeful home buyers out of homes they had been able to afford when interest rates were closer to 2% than 5%.
What is rent-to-own?
One opportunity that more people are taking advantage of is a “rent-to-own” situation. There are two different types of agreements: a lease option and a lease purchase.
A lease option agreement allows you to buy the house when the lease has ended, or you can choose to rent/buy elsewhere. You may lose the “rent premium” you paid, depending on your contract. Make sure you know all the details in the fine print before you sign your name on the dotted line.
The other option is a lease purchase, where you are forced to buy the house you’re renting after the lease is up. This option is excellent for anyone who loves the house but just needs more time to build credit or reduce debt before signing a mortgage for an optimal mortgage interest rate.
“If the housing market is strong and prices keep going up beyond what’s anticipated, this could mean you start your homeownership journey with some equity stacked up. On the other hand, if the economy is wobbly, setting a price in advance could work against you.” (Homelight)
What does this mean for 2022? Obviously, no one can predict the future, but most say this housing market will hold steady because of the extreme housing shortage. Simply put, many, many more people want to buy a house than there are houses available to buy.
When is rent-to-own the best option?
Some rent-to-own landlords do not have your best interest in mind. It is highly encouraged to only rent-to-own with someone you absolutely trust.
You will most likely be paying more than the average market rental cost, as some of that “extra” rent will be set aside for your down payment on the house. Hopefully, your agreement allows you to gain some or all of that money back if you choose not to purchase the home at the end of the lease.
Rent-to-own is perfect for someone who wants to move in ASAP with the ability to pay a higher rent price but needs time to build up their credit score and reduce their debt-to-income ratio. If there is fierce competition in your location, this is a prime opportunity for you to avoid that.
If you have questions or are interested in Fox Capital rent-to-own properties, we’d love to connect with you.