What Rent to Own Really Means

The tern "rent to own" has become very popular in the real estate industry in recent years. Two companies - Prime Time and Rent a Center - have built up big businesses using rent to own products. However, the truth is that the consumer usually ends up paying much more than the value of the merchandise by taking this route. The monthly payments are very low and this means it will take you longer to actually own the merchandise you purchase in this manner. The interest rates charged are also quite high.

For those with bad credit, this is often the most viable route to obtaining furniture and appliances for the home because of the lenient requirements involved in the process. Homes are also part of the package too and many people buy their homes in this way.

Rent to own for a home can be beneficial in the short term if your intention is to rent and then return the merchandise after a short period of time. If you are purchasing something that you intend to keep, it can be a very costly proposition. The usual rent to own agreement on an appliance, for example, is a low monthly payment for a period of 15 to 20 months. This is how the company makes its profit. The total amount you end up paying amounts to about double what you would pay for the merchandise if you purchased it from a retail location.

When you purchase a home on a rent to own basis, you do have to pay the taxes associated with the payment. The high rate of interest means that you would pay far more than you would by taking out a conventional mortgage from a lender. Even though you will have a monthly payment that is higher than with rent to own, the total amount you repay is far less over the length of the mortgage term.

Homeowners are usually the ones who put rent to own houses on the market. You do not deal with a real estate agent, but rather you deal directly with the owner. The agreement usually starts out with a lease for a specific period of time and then if you decide you want to purchase the home, it will change to a rent to own agreement. The arrangement can be worked out between you and the homeowner. As in a mortgage, you have a term in which you pay a specified amount each month to the owner which will go towards paying off the selling price of the home. In such agreement, there is usually a term during which, if you should default on the payments, the owner retains ownership and any monies paid are considered to be rent.

Rent to own is a good route to take if you have bad credit and have been unable to obtain approval for a mortgage. It is a better alternative than renting an apartment or living in an undesirable neighbourhood. The money you pay according to the agreement is the same as paying down a mortgage. However, before you sign any agreement, you must make sure you know the selling price of the home and the length of the term.

Paul J Coulter has an extensive background in real estate and understands the benefits of home ownership. For home sale listings in Toronto, visit Toronto Homes for more information.