What Is Rent-To-Own?

Rent to own is when you lease a home but have the option to purchase it at any time during your lease period or at the conclusion of the lease. The first part of the rent to own agreement spells out what your monthly rent payment will be, and the second part binds the seller to sell to you at an agreed price, provided you meet the conditions of the agreements.

Who is Rent-To-Own for?

Rent-to-Own is for people who are unable to qualify for a traditional mortgage to purchase a home. Some reasons could be low down payment, poor credit or self-employment. It can also be for people who cannot refinance their current homes.

Is Rent-To-Own a new concept?

Buyers and Sellers have been entering into Rent-To-Own transactions for decades. Recent housing market conditions have, however, put the spotlight on Rent-To-Own transactions. The number of Buyers and Sellers will continue to grow rapidly as the public become more aware of the benefits of the concept, for both sellers and buyers.

What is the difference between rent to own, lease option, lease purchase, rent to buy, owner financing, and land contract?

Lease option transactions are also known as rent to own, or rent to buy transactions. In a lease option, the landlord-seller leases the home to the tenant-buyer and the tenant-buyer has the option to purchase the home for a pre-determined price at any point prior to the end of the lease. The main components of a lease option transaction are the lease term, the purchase price, the down payment, and the rent credit.

Lease purchase transactions are similar to lease options; however, rather than granting the tenant-buyer the option to purchase the home, lease purchases contractually obligate the tenant-buyer to purchase the home.

Owner financing agreements and land contracts have similar payment schedules to that of lease options and lease purchases; however, these agreements enable the buyer to purchase the home and obtain title at the beginning of the transaction. The seller, instead of receiving a large cash payment at the time of purchase, as he/she would in a conventional sale, serves as a lender for the remainder of the agreement, and collects monthly financing payments from the buyer. When the owner financing agreement or land contract expires, the buyer obtains third-party mortgage financing and fully repays the seller loan.

Do I have to buy the house at the end of the lease?

No.  The seller will grant you the option to purchase the home, but the decision to purchase is entirely up to you.

What Is An Option Payment?

Not to be confused with a rental security deposit, an option payment is paid at the beginning of the lease period. It is generally not refundable, whether or not you decide to purchase the property. The option payment may be applied toward the purchase price of the home and/or buyer closing costs.

How Much Will My Option Payment Be?

Three to 5 percent of the agreed-upon purchase price is a customary option payment. The more you have to put down, the more attractive your offer will be to the seller. In addition, the more you put down as an option payment, the less you'll need to have financed somewhere else as the terms of your lease are about to expire.

Who pays taxes and insurance on a Rent-To-Own agreement?

During the lease period, the Seller remains responsible for the mortgage payments, homeowner insurance and property taxes.

Who is responsible for maintenance/repairs?

You will be responsible for any repairs and maintenance of the property as any other home owner would. This is a huge responsibility and you will benefit from any improvements that may increase the value of the home once you exercise the option to purchase.

What About Less Than Perfect Credit?

Rent to own programs are designed with two people in mind: the hopeful home buyer with less than perfect credit and the buyer who is not fully commited to buying a home today. Qualifying for a program like this is more about your ability to make the monthly payments. The period of the lease gives you time to make repairs to your credit.

What If My Credit Isn't Good Enough When The Lease Expires?

Before entering into any kind of contract you should speak with a loan officer, tell him your situation and allow him to give you a realistic view of where you will be in two to five years. Join a reputable credit repair program to get your finances in order. Finally, be responsible for your credit during your rent to own term. Pay off old debt and don't add any new.