The housing market is in flux right now as mortgage rates change and Millennials, a younger generation born from 1980 to 1995, are taking over as the predominant generation interested in purchasing homes. However, many Millennials are having issues with securing mortgages due to many underlying factors, most of which are financially based. The oldest Millennials are in their early 30’s, which is the age bracket when many people look to settle down with a spouse and perhaps start a family, so buying a home seems natural.
Rent-to-Own (a.k.a. lease option) housing provides several benefits that young people just starting out in the housing market can make use of.
Here are 5 reasons young people should be talking about rent-to-own:
#1. Bad or Nonexistent Credit
Younger people often have limited knowledge about establishing good credit. Some younger people are a bit more irresponsible in their spending habits and ding their credit scores, which in of itself can severely hamper one’s ability to qualify for a mortgage. During the leasing period of the lease option agreement, tenants can seek out credit fixing services to remove some or all negative items from their credit scores to increase their chances of qualifying for a mortgage when it comes time to fully purchase the house. If Millennials don’t have much credit to begin with, paying rent on time during the leasing period can help to begin establishing good credit ratings.
#2. Cannot Afford A Down Payment
Most young people are early in their careers, so having a job that pays really well is probably a few years off. Saving thousands of dollars with all of their other expenses every month is harder than it seems at this point in time, particularly with rent rising in many cities nationwide. When entering into the lease option agreement, some of the money paid as rent can be allocated into a separate account to be used later as part of the down payment via the option fee.
#3. Have Outstanding Debt To Still Pay Off (student, car, etc.)
A vast majority of young people who come out of college have a mountain of debt that they have to start paying off six months after graduation. Some still have to pay off other expenses (sometimes on top of student debt) such as car payments, so money is tight for many Millennials looking to get into the housing market. A leasing period for a Rent-to-Own house can let you pay rent as you normally would, but some of your money will go towards building up a down payment to be used at the end of the leasing period at which time the option to purchase the home will become available.
#4. Unsure Of What Kind Of Home To Buy
For many young folks, a lot of things are in flux: career choices, relationships, and big decisions like parenting. Young people may not be so sure what kind of home they would feel comfortable investing in. Choosing where to set down for the long haul can be daunting when you really aren’t sure if things may change in the next few years. By leasing the home before a full purchase, Millennials have time to feel out the home, the neighborhood, and the surrounding amenities to see if they feel this particular home will satisfy their immediate needs as well as future ones. Lease option homes offer the chance to walk away from an un-suiting home, often losing only the option fee and not the shirt off your back.
#5. Buying Is Cheaper In The Long Run Than Renting
Rent is rising all over the place these days, and in many cities it is outpacing income growth for many Millennials. While renting an apartment downtown near the fun activities is the trend with younger people, it’s quickly becoming out of reach for many who are beginning their careers or need space for a family. Once an agreement for the leasing period is reached, the rent nor the price you will pay for the home should you decide to buy it can be changed to fit the current market values, so you do not have to worry about the rent rising on you unexpectedly. Keep an eye on the market trends for your chosen area where the Rent-to-Own property is located though to see if it seems like prices are appreciating or depreciating to influence your decision to lease the property at all.
Buying a home as a young person can be a daunting task, as there are so many factors to consider. A home is considered by many people to be the most valuable investment they will make in their lives, so measuring what you want versus what you need from your home is pivotal to making the decision to plant roots in a neighborhood. Many Millennials feel their current burdens are keeping them from getting on the road to being a homeowner, but using methods such as Rent-to-Own properties can provide an alternative that works well with their situations and put them in homes.
Jonathan Dean is a Los Angeles based writer who blogs about sustainability, green living, and the future of real estate at JustRentToOwn.com.