Renting to buy, also known as rent-to-own, is an option for prospective homebuyers who are not yet ready or able to make a full purchase but want to work towards owning their own property. This scheme has been gaining popularity in the Australian market as it provides an alternative to traditional home buying. However, as with any financial decision, there are pros and cons to consider before pursuing this option.
Pros:
Option for buyers with poor credit: Rent-to-buy schemes provide an opportunity for those with poor credit scores to get into the property market. As a rent-to-buy agreement is more flexible, it may be easier to secure than a traditional mortgage, making it a viable option for those who have been rejected by banks for a loan.
Potential for lower upfront costs: Renting to buy means that the buyer is not required to have a large sum of money upfront as they would with a traditional home purchase. This can make the property market more accessible for those who do not have significant savings.
Opportunity to build cash deposit over time: Renting to buy allows prospective homeowners to save additional funds towards a loan deposit. It provides the chance to assess the suitability of the home, the neighbourhood, and the local community before making a full investment.
A portion of the rent can go towards the purchase price: In most rent-to-buy agreements, a portion of the rent paid by the buyer is set aside as a deposit towards the purchase price. This can be an advantageous way to build up a down payment over time.
Cons:
Higher overall costs: Renting to buy may result in higher overall costs than a traditional purchase. As the scheme is often associated with high-interest rates and fees, the buyer may end up paying significantly more in the long run.
Flexibility of the scheme: Rent-to-buy agreements are often less secure and more flexible than traditional home purchases, as they do not require the same level of commitment from the buyer. This can mean that the seller or property owner can change the terms of the agreement, leaving the buyer vulnerable.
Limited options: The availability of rent-to-buy properties in the Australian market is often limited, and the options may be located in less desirable areas. This can make it difficult for buyers to find a suitable property that fits their requirements.
No guarantee of ownership: Renting to buy does not guarantee that the buyer will eventually own the property. If the buyer is unable to meet the payment terms, they may end up losing the property and any payments they have made towards the purchase.
In conclusion, renting to buy can be an attractive option for those who are unable to secure a traditional mortgage or who need more flexibility in their home-buying journey. However, the higher overall costs and limited options may make it a less viable option for others. It’s important to weigh up the pros and cons and seek professional advice before making any final decisions.
At AffordAssist we also offer a new approach to buying your first home by allowing you to defer and pay the deposit without interest later. Instead of requiring the full cash deposit, AffordAssist enables you to purchase your home with an initial partial deposit and pay the remainder of the deposit most typically 60 months, without incurring any interest. With AffordAssist, you will retain 100% ownership of the title to your home.