What You Really Need to Know about Rent-to-Own Properties

(RepublicanReport.org) – Buying a home can seem overwhelming, especially when considering the rising cost of homes and qualifying for a traditional mortgage. Many times, people feel like they will never be able to obtain this dream. Fortunately, several financial opportunities are available to people looking to own their own homes. There are mortgage assistance programs, government grants, and other options for potential homeowners. One path worth considering for non-traditional home buyers is rent-to-own.


A rent-to-own agreement allows the tenant to rent the property for a set amount of time, at which point they will be given the option to buy the home prior to the end of the lease. This allows the potential owner to see if they fit into the neighborhood. Additionally, they will enable the tenant to build up equity in their home before taking out their mortgage. Doing this also allows the landlord to secure a quality tenant.

How Does a Rent-To-Own Plan Work?

To secure a rent-to-own agreement, the tenant is required to pay an “option” fee. This is a negotiable percentage of the price of the home and is the reason the tenant has the option to buy. Additionally, the renter will usually pay over the market price. The extra fees are applied towards the down payment of the house, allowing a person to spread out this payment over the term of the lease instead of all at once.

Lease-Option Agreement

One option for rent-to-own agreements is the lease-option agreement. During the lease period, the landlord cannot sell the home to anyone other than the renter. Once the lease ends, the renter will be given the option to purchase the home. Usually, the landlord will work with the renter and an appraiser to determine the purchase price of the home. Both the renter and the landlord can hire separate appraisers to ensure they are getting a fair value on the home. The option fee and rent credits will lower the price of the home at the time of purchase, but if the renter does not agree to purchase the house, they will lose the option fee and rental credits.

Lease-Purchase Agreement

Similar to a lease-option agreement, the lease-purchase agreement allows for a tenant to pay rent toward the purchase of a home. The difference is that both parties are required to move forward with the sale of the home unless one or both of them break the lease. Additionally, the tenant will need to verify whether they or the landlord will be responsible for household repairs or other fees such as homeowners’ association or taxes.

Is Rent-To-Own a Good Idea?

While it may not be for everyone, rent-to-own housing is an excellent idea for homeowners who meet the following criteria.

  • They must have good credit or be able to repair their credit history prior to the end of the lease.
  • They must be able to qualify for a mortgage
  • They want to pay down other debt while renting
  • They need to increase their employment history or need more time before being able to secure a mortgage.

Prior to agreeing to a rent-to-own contract, have a real estate attorney review it. The potential buyer should ensure they understand the terms of the agreement and can meet them. Keep track of your payments and know the percentage of the purchase price and option is going towards your purchase price. Additionally, you should know how to exercise the option to buy and all other information. Remember, while there is additional research to be done before choosing this path, rent-to-own agreements can help non-traditional home buyers be able to purchase the home of their dreams.

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