What Is a Rent to Own Home?
What is a rent to own home?
To put it simply, a rent to own agreement allows you to rent a house with the option of purchasing the house at the end of a set amount of time, which is often one to three years. Some contracts may require you to purchase the home at the end of the allotted time. The rent to own contract will include the amount to be paid as monthly rent and the sale price of the house. This method of working towards purchasing a house can be a great option for those that can’t afford to buy one right away. It also allows them to avoid taking out a mortgage and may save them money in the long run. To find an available rent to own, you can either go through a real estate agency or directly through the owner. It is advisable to hire an attorney to handle the contract.
Different types of rent to own leases
Lease-option agreement
In a lease-option agreement, the renter can decide to purchase the home at the end of the contract or before it ends. During the lease, the owner of the house is not allowed to sell to anyone else. This type of agreement also allows the tenant to choose not to buy the home at the end of the contract. However, if they do change their mind, they do not get back any money that they have already paid towards the purchase price.
Lease-purchase agreement
A lease purchase agreement requires that the tenant purchase the house by the end of the contract. If you are entering into this type of agreement, you must be sure that you will be able to afford the home by the end of the term. If you are still financially unable to afford the home, you will likely face legal proceedings. This is only recommended for people that know they will be coming into money or are simply working to build up their credit before they can qualify.
Important contract details
Where does the rent go?
In the contract, the owner and tenant will agree on a rental price to be paid monthly. Usually, this price will be a bit higher than a normal rental amount because a percentage of this money goes towards a down payment on the house. If the tenant decides to buy the home, the percentage that went towards the down payment will be subtracted from the purchase price. The owner gets to keep this “rent premium” if you decide you don’t want to buy the house.
Option fee
The potential buyer has to pay a deposit at the start of the contract that is equal to a certain small percentage of the total purchase price. Like the rent premiums, this usually counts as a down payment on the house as well. The seller also gets to keep this money if you decide not to buy the house.
Purchase price
The buyer and seller must agree on a purchase price in the contract. Often this amount is set at the time of the agreement and does not change throughout the lease. However, some agreements arrange for the price to change throughout the lease term to accommodate for fluctuating market values. They may also decide to wait to come up with the final price until the time the tenant decides to buy.
Maintenance
It is important to consider who will be responsible for maintaining the property and making repairs during the lease term. It should be specified in the contract what kind of repairs the seller will take care of versus what the potential buyer is responsible for. It should also be made clear who will be responsible for property taxes and other household expenses.
