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Renting-to-own a home Print this to take with you Share this page to social media channels QUICK EXITInternet usage can be tracked. Use this to leave this site immediately. Remember to clear your browser history to hide activity.
Help ILAO open opportunities for justiceRent-to-own agreements allow the tenant to buy a home after renting for a period. In a rent-to-own lease, the tenant pays monthly payments. Each monthly payment includes an amount for rent and an amount that goes towards a down payment for the purchase of the home. At the end of the agreement, the tenant then has the option to buy the home. Some agreements require the tenant to purchase the home at the end of the lease. These agreements are sometimes referred to as a lease-option or lease-purchase.
Generally, renting-to-own is paying rent for a property and also paying for the option to buy the property later. The rent may be above market rate. A portion of each payment is used as the down payment for the home. After the agreement ends, you have the option to use that money to buy the home. If the tenant decides not to buy, or is unable to secure financing at the end of the rental period, they can lose the option fee and any additional rent premiums paid towards the purchase price.
Maybe. Renting-to-own is an option if you do not want to, or cannot, buy right now. This could be because you don't meet the income or credit requirements to qualify for a mortgage. You should talk to a lawyer if you are considering renting-to-own so that they can advise whether it is the right decision for you.
This is the amount of money the tenant pays in exchange for the option to buy the property later.
The amount is usually between 2.5% and 7% of the price. This fee may or may not go towards the price of the home.
If the contract calls the fee a "lease purchase," that usually means that the tenant has no choice - they must buy the house by a certain time.
Make sure you understand what you are agreeing to. It is a good idea to have a rent-to-own agreement reviewed by a real estate attorney before agreeing to it. Make sure that you also speak with a mortgage broker to find out how to structure the down payment made to the seller so that you don't have issues with your loan once you are ready. Lenders sometimes have issues with verifying a down payment when it is paid as part of rent.
The written agreement must say when and how the price of the home will be decided. In some cases, the tenant and owner agree on a price when the contract is signed. In other situations, they agree to negotiate on a price when the lease ends. It is usually better for the tenant if the purchase price is set at the time of contract. This provides the tenant with more security and prevents the landlord from increasing the price later on. However, if housing prices go down, this may benefit the landlord.
The rent-to-own agreement should be specific as to who is responsible for:
If the tenant decides not to, or cannot, purchase the home at the end of the lease term, the owner may be entitled to keep all of the money paid. If the contract says the tenant must buy the house at the end of the lease and the tenant does not, the owner might sue them for not holding up their end of the agreement.
To buy the house, the tenant usually applies for a loan from a bank and uses the funds to pay the owner the remaining money due. The monthly payment that was a portion of the purchase price should be applied towards the total payment for the real estate. After the transaction is “closed”, the tenant becomes the owner of the property.