Renting a manufactured home can offer a solid and cost-effective dwelling space. But there’s no denying that homeownership affords many benefits that renting simply cannot offer. What’s a financially savvy renter to do if they want to take steps on the path to homeownership, but can’t afford a down payment all at once?
A rent-to-own mobile home with an option to purchase might be the compromise that you’re seeking. How do rent-to-own mobile homes, also known as lease-with-option homes, work, and when are they a good alternative to simply renting a mobile home?
How Are Rent-to-Own Mobile Homes Different?
Normally, paying rent on a home doesn’t bring you any closer to purchasing that property. However, in some rent-to-own agreements, part of the renter’s payments to the landlord may be used toward a future purchase of the manufactured home and/or the land.
After a period of years specified in the agreement, the renter may have the option to purchase the manufactured home at either a price negotiated at the inception of the agreement, or a price based on the fair market value of the home in the future (in some rent-to-own agreements, called lease-purchase agreements, the renter may be required to purchase the home). If the renter exercises their option to buy, a portion of the rent payments the buyer has already made gives them equity in the property. Some manufactured home lenders take rental payment history and equity into consideration, which may make it significantly easier to secure mobile home financing for the remaining balance.
Typically, a rent-to-own agreement may have slightly more expensive monthly rents than a standard rental lease. However, the trade-off is that renting to own can help a renter build for the future in a way that standard renting won’t. That’s why renting to own can be a great option for people who want to get on the path to owning a home but don’t have the cash for a down payment. However, there are some important caveats of renting to own that any buyer should know about before exploring their options.
Things to Consider When Renting to Own
Renting to own has some special considerations to be aware of, including :
- The legal language on a rent-to-own agreement will affect many things about a buyer’s ability to purchase the home, so it’s important to ensure that the agreement is acceptable and that its terms are completely clear on all sides. Get a real estate attorney involved, and make sure that the terms of the agreement are well-defined.
- Most rent-to-own agreements include an upfront fee, called “option consideration,” which is paid to the landlord at the beginning of the lease. These fees are typically negotiable but can often come to anywhere between 2.5 and 7 percent.
- Pay particularly close attention to when the purchase price will be set. Some agreements lock in the purchase price at the beginning, while others assess the property’s value upon expiration of the lease. This can be an important difference if property values in the area are expected to rise.
- Thorough research on the property is just as key as it is with a traditional home buying process. Compare the sale values of similar mobile homes in the area to get a ballpark idea of a reasonable price, or employ an independent manufactured home inspector and appraiser to evaluate the home’s structural condition and value. You don’t want to put your hard-earned money toward a property that’s not of sufficient value to buy.
- Some rent-to-own contracts require the renter to perform all or some of the maintenance. If this is the case, take the time to learn about basic manufactured home repair sand make sure to build potential repair expenses into your budget. Know exactly which kinds of maintenance and repairs your agreement obligates you to perform and for which kinds your landlord is responsible.
Finding a Rent-to-Own Agreement
Many landlords don’t offer rent-to-own options, so it can be more challenging to find rent-to-own mobile home properties when house hunting. However, there’s no harm in asking a prospective (or current) landlord if they might be open to a rent-to-own arrangement. Just take care to ensure that the arrangement is legally sound and that you understand all of its requirements.