For most of us, buying a house is one of the biggest commitments we will ever make. And that commitment is usually more than a financial one. Often, we invest a lot of our hopes and dreams as well.
When we make the decision to purchase a property we are binding our lives to those bricks and mortar.
So, how do you know that you're making the correct decision to buy?
And, what happens when you don't have the money to outright buy your dream house? What if you have a bad credit score or you simply need time to get your finances in order?
For many people who dream of ownership but who aren't quite ready to take the ultimate plunge, rent before owning is the ideal solution.
Rent before owning offers you the house you want, and it gives you the time you need to get all of your ducks in a row.
If you're curious to know more, read on. This article is for you.
We're sharing everything you need to know about rent before owning, and so much more.
Rent Before Owning - The Full Scoop
1. A Traditional Home Purchase
A traditional home purchase works something like these seven steps:
You get mortgage approval
You find your dream home
You make an offer on that house
The offer is accepted
You put a downpayment on the purchase price of the property
The lender finances the rest
You pay regular installments over a period of years until the balance (including interest) is paid in full
In an ideal world, that is how the process of buying a house works.
But, how many people live in an ideal world?
2. A Rent Before Owning Option
For many people, qualifying for a mortgage is not as straightforward as it could be.
In these cases, there is an impressive alternative: a rent before owning agreement.
This agreement works like this:
Agreed Rent Amount
You pay an agreed amount of rent for a set period.
In many cases, part of this rent can be put toward the purchase price.
Option to Purchase
You have the option to purchase the property either before or when that lease expires.
To have the right but usually not the obligation to buy the house, you pay a one-time, refundable or non-refundable fee. This is called an 'option consideration.'
This fee is negotiable. Typically it comes in between 2.5% and 7% of the purchase price of the property.
Your agreement will specify how the purchase price will be determined. This price can be agreed in advance or at the time of sale
Often, the option consideration can be applied to the purchase price
Maintenance of the Property
Your contract will specify who is responsible for routine maintenance and extensive repairs.
In all of this, rent before owning allows you to get your foothold in the market, without having a mortgage in place at the time.
Let's take a look at some of the other benefits.
3. Try Before You Buy
Most of us wouldn't buy a car without taking it for a test drive first, would we? Yet, millions of people purchase homes without knowing too much about them.
When we purchase a home, the colossal nature of the cost means that we're expected to live in it for the next ten or twenty years.
And all of this despite us never having spent one single night in it!
Rent before owning allows you to live in the home before you commit fully to buying it.
If there any problems with the house - from structural issues to nuisance neighbors - you'll know before it's too late.
4. A Place to Call Home
For many of us, moving home is one of the most exciting times in our lives.
With many traditional renting scenarios, however, people can often end up moving numerous times.
If you have a family, constantly uprooting your brood can be anything but fun.
With rent before buying, when you have found the house you want, and you're committed to a particular neighborhood, you get to stay in that neighborhood.
You put down your roots, and you have a place to call a home.
5. You're Building Equity
Many people who don't qualify for a home loan just yet find themselves in the unenviable position of renting a property they don't even like.
And, worse than that, that rental property is taking up a mammoth portion of their paycheque.
Beyond this awful situation, many renters often find themselves in a tricky spot.
Sure, they want to save for a home, but the cost of the rent can make things very, very difficult.
When you opt for rent before owning, you can build equity and have part of your rental payments go toward the purchase price of the house.
If you've tried to save and rent before, you'll fully appreciate what a win-win situation that is.
And, if you have issues with your credit score, a rent before owning agreement affords you the opportunity to rebuild that credit score over time.
6. Purchase Price Certainty
In today's volatile housing market, having an agreed-upon purchase price ahead of time can provide you with some much-needed certainty and peace of mind.
When you sign a rent before owning agreement, you and the seller will agree how the house price will be determined.
Options here include today's market value, a set purchase price, etc.
Because you are also building up your financial means, this certainly can make a monumental difference to your financial planning.
Rent Before Owning - Is it Right for You?
So, there you have it.
Consider yourself well versed on the concept of rent before owning.
It allows you to live in the house while working towards buying it.
It provides you with a sense of security while speaking to your need for certainty.
And, it might just be the perfect option for you.