What is a Rent to Own Home and How Does it Work
Homeownership is pretty much everyone’s desire these days. However, with all these crazy house prices, it’s near to impossible to be able to buy one right away. One way is to apply for a down payment or a mortgage and then there are other ways like rent to own. While rent to own might appear like a good alternative for your house buying problems, it can still be quite a risky thing for buyers to do.
In order to make a decision that you won’t regret on your journey towards homeownership, you need to understand how rent to own homes works.
What is a Rent to Own home?
Rent to own homes are homes that are bought upon a rent to own agreement. This is a type of a contract for renting a property for a specific amount of time. Then after that time period ends you can go for gaining ownership. This time period may range from several months to years depending on what both the parties have agreed upon in the contract.
During the time periods, the seller holds a certain amount of money from each rent payment that’s towards your equity. This is the portion of the house that you will owe compared to what you will owe when you make a purchase.
There are two different types of such agreements:
Lease option agreement: You can have the option of purchasing the home after the agreed time period.
Lease purchase agreement: You are legally obligated to but the house after your lease time is up.
How does Rent to Own Work
Just like other home buying processes, rent to own involves a property contract that needs to be signed with the owner. However, the Rent to Own process is still very much different from other home buying methods. Negotiation is one of the trickiest parts of this process. Everything from the purchase price to the closing costs is negotiable. However, this is how it’s supposed to work
- Negotiating a purchase price of the house which may be based upon the house’s current value or the future value. There are also cases where the purchase price may not be decided until the lease expires.
- By contract, you would have to agree upon paying a certain amount of rent each month. This will be higher than your normal rent considering a percentage of it is set aside as a credit for your purchase.
- During the renting period you may be responsible for the repairs and maintenance costs of the house including the property taxes.
- Money or fees need to be paid to the seller at one time. This is a nonrefundable fee for the option of consideration. It is typically a percentage of the house payment.
- You need to make an agreement with the seller regarding the lease term. By the end of the lease if you are unable to qualify for purchase, then the option to purchase will expire.
- By the end of your lease period, you need to secure enough finances in order to purchase the house. You have to do this while paying the rent at the same time. The closing date should contractually be the ending of your agreement. Depending upon whether you fulfill the conditions, you may get ownership of the property.
Conclusion
With a rent to own process everything is negotiable considering there is no standard rent to own contract. This process is less regulated than the other buying or rental processes and hence you can talk into it. In case you decide to enter this process to fulfill your house ownership dream, then you must consult with a trusted real estate agent or attorney first and make sure the terms of your unique contract are clear and acceptable. For more information visit renttoownreviews.com/rent-to-own-vs-rent/
