Many people who are still renting and dreaming of that one day when they will enter home ownership have heard about rent to own homes. These homes allow you to move in, make a monthly payment just as you would with either a mortgage or rental agreement, but a portion of that rent is reserved and is credited towards your down payment, should you decide to buy the home at the end of the predetermined time frame. However, many people mistakenly believe that this is the only money they need to have before they enter into a rent to own agreement. In fact, you need one before you ever even speak to a seller, or a rent to own agency.
When either sellers or rent to own agencies (companies that have many properties available for rent to own) enter into an agreement with a potential buyer, they want to know that the buyer is truly serious about purchasing the property. Sellers want to sell, no matter what type of agreement it is, and they want to know that they’re working with people that have the same interests. And for this reason, they’ll require a down payment before ever even talking about an agreement. If the deal goes through and you do end up moving into the home, but also end up not wanting or being able to buy it in the end, that down payment you provided will be forfeited, as well as any money given for rent or as additional down payment.
So, how much money will you need for that first initial down payment?
Typically sellers require that you have at least $5,000 before entering in agreement. You’ll usually have 1-3 years to rent before you buy the property (or choose to walk away) and with each monthly payment during that time, you’ll add onto that down payment. Remember however, that most of the monthly payment goes towards rent, and not the down payment, so make plans to make additional payments and/or bigger payments when possible. And make sure you can put it into the contract that you’ll be able to do this without risk of penalty.
One of the biggest benefits of renting to own is that you can save up a little at a time for your down payment, while enjoying the home that you will one day own at the same time. However, this isn’t the only down payment that you’ll need and in order to make sure that you’re prepared, you should have a significant amount already saved and be ready to be used as a down payment before you contact any seller.