Will you eventually regret renting your own arrangements?
- Rent-to-own is a method of renting out a home and eventually taking ownership.
- Dave Ramsey does not support rent-to-buy arrangements, in fact he believes you should avoid rent-to-buy at all costs.
- Homebuyers take a huge risk when they enter into a rent-to-buy situation.
Most people who buy a home get a mortgage, buy it, and move in. But there is another option, called rent-to-buy.
With this arrangement, you can choose (or request) a property to buy after a certain number of years. Your rent payments will be higher than theirs if not owned rent, and the extra money goes towards buying the property.
You can eventually (hopefully) get a mortgage, using the assets you’ve acquired in the home and your rent as part or all of your down payment.
While it might sound like a good deal if you’re worried you’re wasting money on rent, Dave Ramsay isn’t a fan of rent-to-buy properties. In fact, that’s a mild-mannered statement, as the finance guru actually says the arrangement should be avoided “at all costs.”
That’s why Ramsay doesn’t like rent-to-buy arrangements
Ramsay doesn’t like the rent-to-buy arrangement for a few simple reasons. That is, he sees them as complex, risky, and beneficial to the seller over the buyer.
Ramsey’s first major objection to rent-to-buy is that there can be a lot of fine print in a contract, and sometimes it’s hard to get the terms right. For example, Ramsay points out that renters often end up paying maintenance costs while renting out properties — money they can’t get back if they decide not to buy. This is just one of many contract terms that buyers may not be aware of.
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“Before signing a contract, make sure the terms are correct. Read the fine print too. It’s a good idea to have a lawyer or real estate expert review the contract,” he advises.
His other objection is that buyers take a huge risk. If they can’t get a mortgage to buy a property when the time comes, or if they decide to change their minds, they’ll run out of money. This includes the maintenance costs mentioned above, but also upfront fees and higher rents that are usually required for self-rental contracts. Even if they do complete the purchase, they risk paying more than the home’s value because contracts often require them to pay inflated prices.
Finally, his last question is that sellers benefit more than buyers. “The seller has most of the power over a rent-to-buy home,” Ramsay explained. “They can make money any way they want, whether it’s renting or selling their home, and they know that most people who do a lease-to-own deal are struggling financially. So they give themselves a lot of ways to get out of the deal.”
Ramsay warns that if you miss a payment or fail to make repairs in time, you could end up losing your chance to buy a home — and all the money you’ve already spent.
Should you listen to Ramsay and avoid renting before buying?
Ramsey is absolutely right that rent-to-buy arrangements are generally best avoided. You’re usually better off just renting (and paying lower interest rates) while saving money and improving your finances so you can buy a home the traditional way.
Of course, not everyone feels they can do this. If you really want to be a homeowner, and you think rent-to-buy is the only way you can save on your down payment, you may decide that staying with this option is best. Make sure you enter with your eyes open and hire a lawyer to help ensure your interests are protected throughout the process.
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