Friday 14 December 2018

Rent-to-Own Homes: How the Process Works



If you want to buy a home or an apartment for investing point of view. To buy a new home, you need a good credit score and cash for down payment. Without the ample of money, you cannot buy a new home. This route is tough for you if your credit score is low.

There is an alternative way to own a new home. A rent-to-own agreement, is an agreement in which you rent a home for a certain amount of time, with the option to purchase it before the lease expires. Rent-to-own agreements has two parts:

  • A standard lease agreement.
  • An option to buy.

We will discuss below the whole process of rent-to-own agreement. It is less tough as compared to simple renting and buying. For this you have to take some extra precautions to protect your interest. By taking precautions, you will get to know whether the deal is good for you or not.

You Need to Pay Attention on Option Fee
In a rent-to-own agreement, you as the buyer has to pay one-time fee to seller. This fee is usually non-refundable and upfront called the option fee, or option consideration. This fee will give you the option to buy the house in the future. The option fee is generally negotiable. You can negotiate the fee with your agent and go with the option that suits you


Read the Contract Carefully
There are two different things in the contract. Some contracts have Lease Option while some have Lease Purchase. These are types of rent-to-own agreement.

The lease - option contract gives you the right, but not the obligation, to buy the home when the lease expires. If you do not want to buy the property at the end of the lease, the option simply expires. You can leave the buying option without any obligation to continue paying rent or to buy.

Lease-purchase contract gives you some legal obligations at the end of the lease. It does not matter you can afford it or not. You cannot walk away without buying the home after the expiry of lease.

Purchase Price
Rent-to-own agreements should specifically clear in providing you knowledge about when and how the home’s purchase price is determined. Sometimes, you and the seller will agree on a purchase price when the contract is signed even at a higher price than the current market value. While in some other situations the price is determined when the lease expires, based on the property's current market value.


Know What Your Rent Buys
You will have to pay rent throughout the lease time. The dilemma is whether a portion of each payment is applied to the eventual purchase price or not. Most of the often, the rent is slightly higher than the going rate for the villa to make up for the rent credit you receive.

Maintenance: It might not be like Renting
You may be responsible for maintenance of the property and paying for repairs. It depends on the contract. Generally, the maintenance and repair are the landlord's responsibility. So, read the copy of your contract keenly. Eventually, the sellers are responsible for any Home Owner Association HOA fees, taxes and insurance. Landlords typically choose the high fee to cover these costs. Make yourself sure that the repair and maintenance requirements are clearly mentioned in the contract.  

Buying the Property
What happens to your property, it partly depends on which type of agreement you signed. I have mentioned above, the two options: Lease option contract and Lease purchase contract. If you have selected a lease-option contract and now you want to buy the property, you will most probably need to obtain a mortgage in order to pay the seller the full amount. In this case you do not have to buy the house. Here you are unable to secure financing by the end of the lease term. 

 If you have selected the Lease purchase contract the results will be vice versa.