California has the highest home prices in the country, and you can expect to pay almost twice as much for a house here as you would anywhere else. So, if you're looking at buying a home in this state, you might need to put your aspirations on hold for now.
Rent-to-own homes can be a solution for prospective homebuyers who are struggling to achieve conventional home financing in the Contra Costa housing market. They're also a good option for sellers who are struggling to find buyers at the current high prices.
Read on to find out more about these unusual types of lease agreements.
What Is a Rent-to-Own Agreement?
Tenants who sign rent-to-own agreements with a homeowner get the opportunity to buy the home at the end of their lease term. They pay a large, non-refundable option fee when they sign the lease and then continue with rent payments as usual.
The option fee usually amounts to between 1% and 5% of the home's purchase price. The option fee and a part of the rent are placed in an escrow account and allocated toward a down payment on the home.
Types of Rent-to-Own Home-Buying Options
There are two types of rent-to-own agreements available under California law. These are:
Lease-Option Agreements
When you sign a lease-option agreement, you agree on a sales price at the outset of the agreement. When the lease ends, you have the option to purchase the house at the agreed price, but you aren't forced to do so.
Lease-Purchase Agreements
Lease-purchase agreements compel the seller and buyer to stick to their arrangement at the end of the lease. If the buyer backs out of the deal, the seller can sue them.
Pros and Cons of Rent-to-Own Homes
There are several risks involved in rent-to-own agreements. These include:
- Extra costs, i.e., the option fee
- Higher rent prices
- Losing your money if you decide not to buy the home
The Federal Trade Commission has issued warnings about people being scammed via so-called rent-to-own deals, so it's vital to get expert advice from a lawyer or real estate expert before signing a rent-to-own lease.
In many cases, the seller will expect the prospective buyer to cover all maintenance and repair costs for the duration of the lease, too.
Rent-to-own benefits include:
- Allowing the buyer time to improve their credit
- Paying off a down deposit over time
- Fixing the home's price at the outset
Get the Help You Need
Rent-own-homes allow tenants to pay off a deposit on a home while staying in it. They can be a winning solution for both sellers and buyers, but they do involve some extra costs and risks.
PMI Contra Costa is a full-service property management company serving Walnut Creek, Danville, San Ramon, and the surrounding areas. Our team of experienced and qualified Contra Costa real estate experts is committed to helping our clients using the latest technologies and personalized service.
Browse our blog for more property investment tips or discover our formula for success with Contra Costa County rental properties.
