There are a few options a person could choose when it comes to purchasing a house. If finances are in a good place, a person may chose to buy a house upfront, with no down payment or future payments. If a person has credit decent enough to purchase a house on a mortgage, that could be used to finance a house as well. However, when a home is what you need and your finances are not where it needs to be to buy a house, a person can choose to purchase a rent-to-own home. When buyers elect to enter into a rent-to-own agreement for a house, they agree to rent the home at a set price for a certain amount of time before the option to purchase the property comes or the lease expires. If you choose to select from rent-to-own homes, it is a good idea to be familiar with the process of renting to own a home.
Key Elements for Renting to Own
When entering into a rent-to-own agreement, the individual is able to move into the house immediately. This allows the buyer several years to improve their credit score or to save up enough money for a down payment on another house or current house. Each state has their specific rent-to-own homes contract. However, typically each contract covers a one to three year period. After the contract expires, the buyer is given the choice to either purchase the home or leave the property. Before signing the contract, buyers must be aware of some conditions that must be met:
- Option money or option consideration refers to a one-time, non-refundable, negotiated fee that the buyer has to pay. This allows for the option to buy the house after the contract expires. Keep in mind that with this condition, the buyer is not obligated to purchase the home after the contract expires. If the contract says lease purchase, then the buyer will be obligated to purchase the home after the contract expires.
- Purchase price is the agreed amount between the buyer and seller that is often set at or higher than the current market value of the house. This price comes into play when the contract expires and the buyer wants to purchase the house. Many individuals prefer to lock-in the purchase price, especially in a market where the prices of homes tend to increase.
- Rent is the specified amount paid by the buyer each month. The rental terms are negotiable but typically range between one to three years. In many contracts, a percentage of each monthly rent payments are applied to the purchase price. That way, when the contract ends and the buyer want to purchase the house, the price is lower than what it was at the beginning.
- Maintenance may be a part of a rent-to-own home contract as well. The potential buyer may be responsible for the upkeep of the property and repairing anything that is broken. The buyer may also be responsible for property taxes, homeowner’s association fees, and insurance on the home. The seller may be willing to cover those costs since the buyer may purchase the home at the end of the contract. However, the buyer will still be responsible for purchasing renter’s insurance.
- Purchasing the property comes at the end of the contract. The buyer either purchases the house or decides to leave. If the buyer does not purchase it, the option money expires and all money paid must be forfeited. If the buyer is obligated to buy, but does not, legal proceedings may be initiated. Buying the house may include financing, or paying the seller in full.
Is Rent-To-Own For You?
Before you purchase a rent-to-own home, you should make sure that this option is the best one for you. This is a great option if you are working toward getting financially stable. Paying rent each month would cost less than paying on a mortgage, especially if your credit score is low. Purchasing a rent-to-own home allows the opportunity to save money and repair credit. Even after renting a home to own, you could possibly still not qualify to take out a mortgage, but do not be discouraged. Stay confident in your efforts and keep working toward your goal for owning a home.
Important Facts to Remember
If you choose to purchase a rent-to-own home, there are a few things that are wise to remember. You must make sure to keep up with payments. The contract can easily become void if the buyer is late with payments. If payments will be late, make sure to let your seller know in advance, but do not make it a habit. Keep in mind that a rent-to-own contract is legally binding, and if any parts of the contract are not upheld, the matter could be taken to court. Also, if you are uncomfortable with signing a contract on your own, consult with your lawyer or real estate agent.