What is Renting to Own?

If you’ve been thinking  on buying a home anytime in the near future, getting a mortgage loan is typically the traditional method as long  as you have the down payment and credit available.  Without these two assets, the traditional route to home-ownership may have some challenges, however If you find yourself in this situation, there is a solution and more than likely the same reason how you landed on our site. Because of this you should never have to worry about this problem anymore as there is always an alternative for those who want to buy a new home. This alternative is called a rent-to-own agreement. A rent-to-own agreement is a popular option for all people looking to buy a new home without having to take out a mortgage. With this agreement, you are allowed to rent a home for a certain amount of time, traditionally 2-3 years. Then, you are going to have an option to potentially purchase the home before the lease ends. This rent-to-own agreement usually consists of two main parts:

1. They are Standard lease agreements
2. Lease option to purchase the property.

Both parts need to be read and signed by both parties who are looking make this agreement. This lease option to purchase agreement may be more complicated than regular renting. Because of this, you’re going to need to take some extra precautions for protecting yourself before signing any documents.

Pay the Nonrefundable Upfront Fee

In the rent-to-own agreement, you are usually required to pay the seller a non-refundable upfront fee. This fee is usually called the option money, option fee, or option consideration and most popular: down payment. It will give you the option of buying a house in the future. The option fee is always negotiable since it has no standard set rate or requirement. The fee usually ranges from 1% to 5% of the total purchase use. However some listings do no charge this if you are going directly through the owner/landlord without any agents involved.

Agreeing on the Purchase Price

Most rent-to-own agreements will specify when and also how the home’s price can be determined, as you and the property seller (landlord/owner) will agree on the purchase price when the initial agreement is signed. In some examples, the price to purchase the home may be higher than the current market appraised value. If this is the case DO NOT SIGN THAT AGREEMENT. When the lease expires, the price can be determined based on the property’s current market value but try to lock in the price based off of today’s appraised value.. When the home price is trending up, you may get benefits by locking in the purchase price now versus later. You can buy the house at the agreed price at the end of the lease period thus giving you some gained equity.  Just make sure you place the agreement with a escrow company to manage all funds and terms of the agreement, this will help the both of you in-case a dispute arises or property value increasing too much. For example if the value increase by 25% or more the seller will not want to sell the home at the agreed price. They will want to renegotiate the contract or find a new buyer. BEWARE!

Who Should Invest In the Rent-to-Own Home Market?

Rent-to-own agreements are good especially when you want to buy a new home without having to get a good credit score. This type of agreement can help you get your finances in order, boost your credit score, and also help provide extra time to save your money for the down payment. Most banks will need you to put 5 percent to 10 percent down to own the property.You can use this agreement for locking in the price of the house that you are going to own especially if this is a dream home. If you don’t have enough money for covering the down payment, you can consider taking this type of rent-to-own option which has grate advantages.

Conclusion

This rent-to-own agreement and lease option to by is the same thing. It’s suitable for those who want to move into the house right and gives you time to fix your credit, so you can improve your credit score significantly. These terms and conditions must be specified in the agreement before signing any documents. Both you and the home seller should agree on all details of this contract.