There are certainly certain pros and cons of which to be aware before placing your signature to a contract.

Advantages

Obligation

A main advantage to a homeowner commitment is the capacity to try something out without any real obligation toward it. Unlike a home loan that can span 15 years, a rent-to-own agreement is typically for a period of one to three years. Therefore this allows the customer to check out the home and neighborhood and decide whether or not he actually wants to keep it at the end of the contract. It should be noted, however, that if an individual decides to leave from that contract, he loses out on any specific rent-to-own payments -- as well as any advance payment made -- created during the period of the contract.

Building Up Down Payments

Down payments are typically required by lenders to pay for a home. This prerequisite hinders a number of people from taking steps to purchase a house. However, in a lease purchase situation, prospective are able make use of a portion of the rent payment towards the advance payment. This provides interested buyers a chance to save up a down payment without actually having to live in the property.

Disadvantages

Security

Compared to a regular purchase or loan with financial institution, individuals that use rent-to-own contracts have little to no protection if they are not able to make payments or fall behind. Almost all rent-to-own agreements particularly state that someone can lose their home if they are unable to pay the rent. Unlike a typical mortgage, individuals do not have the choice of refinancing or claiming hardship to be able to preserve the lease purchase agreement.

Mortgage loan Approval

Many individuals enter into a rent-to-own contract until they are capable to be approved for a loan with their own individual credit. Although this is a big advantage for a few, those that still have a bad credit score may find there are still unable to obtain traditional funding at the end of the signed contract period. In that instance, they may have to forfeit the property as well as the signed contract.

Market Value Changes

Fluctuations in home costs can be a huge problem to a rent-to-own deal. When getting into a lease purchase situation, all concerned parties agree on a set price for the purchase. The renter/buyer has to make payments toward that acquisition costs throughout the contract, even if it has gone down in value. Take for instance, a couple may enter into a rent-to-own deal for a residence they are going to purchase at the end of the year for $250, 000. At the end of the year, however, the home's market value has lowered down to $200, 000. The couple will have already made payments for the whole year on the home based on the contract value and have to determine whether or not they really want to continue paying for a home that is more expensive than it is currently worth.

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