It’s no surprise that we live in a desirable part of the Pacific Northwest. It’s also no surprise that Eugene has been experiencing a bit of a housing shortage. That’s why many people that can’t buy a home right now are being faced with high rent premiums for incredibly small homes. This housing crises has caused people that don’t have the credit to buy now looking into rent to own homes. However, are rent to own homes a viable path to home-ownership?
A Short Primer on Rent to Own Homes
With the rent to own home buying method, a renter and landlord agree to a contract that allows the renter to pay rent plus a specified additional sum of money to the landlord each month. These extra funds go toward the future purchase price with the understanding that the renter will have the option to purchase the house in the future.
The sales price is set at the beginning of the contract and depends on the current market value of the property. At the end of the deal, often 12-18 months, the renter must purchase the house or lose all of the funds that they paid to the landlord. Yikes.
The risk of getting involved in rent to own homes is that you stand to lose the additional money if the sale doesn’t happen. In my experience, rent to own homes often go poorly, and many renters end up losing their money.
So, Does Renting To Own Makes Sense?
Honestly, no. There have been too many bad experiences because it rarely ever works the way the renter expected. The renter gets burned and ends up being out money that could have gone towards a down payment for a different home purchase. Here are some potential pitfalls to consider with rent to own situations:
Hot markets can cool
Remember that the purchase price is set at the beginning of the rent to own contract, and the price reflects the market conditions that existed at that time. So, if you do a lease to buy agreement right now, you’ll end up with an agreement to pay a premium for the house. What happens if the housing market cools, and the market value of the house is substantially less when the time comes for you to purchase it?
Your Credit Score is Still Crucial
Eventually, you’ll need to obtain a home loan to purchase the property. High credit scores result in favorable loan terms and minimal interest rates. All of the extra money that you’re paying a landlord in a rent to own plan could be going to pay down debt and build up assets. It isn’t doing anything to improve your credit rating. On top of that, if your credit doesn’t improve within the time-frame of the contract, you’re out all that money. This is just another reason rent to own homes are a bad move (pun intended).
Slowing Down is the Safer Solution to Owning a Home
Even though you’re eager to buy a home, rent to own homes aren’t the best option. It’s smarter to slow down and get your finances in order before you try to enter the real estate market. My advice is to wait, build up your credit if it is a hindrance, and save a down payment. If you give yourself the time to fix your finances, you’ll be in a terrific position to find a beautiful home in one of the many great Eugene neighborhoods.
Here are some ways to boost your ability to afford a house in Eugene:
Raise Your Credit Score
When evaluating your eligibility for a home mortgage, lenders look at a number that represents your credit rating, also known as a FICO score. Whenever you apply for credit, such as a home loan, the lender orders your credit report from a credit reporting agency. The agency examines your credit history and uses it to calculate the FICO score.
If your credit rating has taken some hits like a late credit card payment for example, now is the time to work on cleaning up the damage. The terrific thing about a FICO score is that it is always in motion, and you have the power to raise it. Experts suggest that you build your credit rating by
- Paying down credit balances
Paying off loans
Making payments on time
Checking your credit report for mistakes
It will take some effort to improve your credit position, but the benefits for home buying opportunities make the temporary strain worth the work. Instead of paying extra money to a landlord, you can use the money to lower your monthly debt load, so that lenders want to give you a home mortgage.
Save for a Down Payment
Having a good down-payment on a house is always a good sign to lenders. With an improved credit score and a down-payment- lenders are far more likely to offer a home loan with good interest rates. Here are some quick tips on saving for your down payment:
- Transfer a fixed amount into a savings account each month
Skip vacations for a year to save that money
Reduce your high interest rate debts
Hire a financial planner to help you see other areas you can save
If you have them, sell some investments
Look into Lane County’s down payment assistance program.
It’s never too early in the buying process to get the advice of an experienced real estate broker who knows how to navigate the ups and downs of the Eugene real estate market. My clients take top priority as I match them with fantastic properties in communities all over the area.
Contact me today for friendly advice and an expert perspective on the state of home-buying in Lane County.
As always I love helping you make it home,