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Rent to Own May be the Easy Way to Buy a Home

By on March 11, 2012 in Money

Rent to Own May be the Easy Way to Buy a HomeWhen you want to buy a home but don’t have the means or the credit, there may be another option. Some home sellers will work with you on a rent to own basis. Learn the ins and outs of renting to own the home of your dreams, so you can decide if it’s the right move for you.

What Renting to Own Means

The concept of rent to own is just as it sounds. You rent a home, condo or apartment with the option or the intention to buy the residence at some future point in time. As the renter of the property, you are dealing directly with the owner of the property, which means that when you are negotiating the terms and conditions of the agreement, almost anything and everything is negotiable. Because you are not dealing with a traditional lender and its guidelines in order to potentially buy the property in the future, it is up to you and the seller as to what you are willing to put in the contract or not, as long as it is legal.

Terms and Conditions

After you verbally negotiate the terms and conditions of the rent to buy option, it is imperative that you put these terms and conditions into a written agreement that both you and the seller of the home agree to and sign. You should consider working with a real estate attorney to help you draw up, or at the very least review, the agreement prior to signing it.

Some of the terms and conditions you should include in the contract are:

Option fee: The option fee is the amount of money that the renter agrees to pay the owner of the property upfront for the option to buy the home at some point in the future. The option fee is typically not a refundable fee, so if you as the renter choose not to exercise your right to buy the home later you do not receive this money back.

The option fee amount, again, is negotiated between the renter and the seller. Typical rent to own option fees, however, tend to run anywhere from one to three percent of the purchase price of the home.

Purchase Price: Another part of the rent to own agreement is the future purchase price of the home. The future purchase price of the home only applies if the renter chooses to exercise their option to buy and cannot change as long as the renter chooses to exercise during the preset time period.

Time Period: The agreement also specifically states the time frame in which the renter has the option to exercise their right to buy. Generally, the time frame is a one to three year time period, but this too is negotiable.

How Rent to Own Works

The way in which a rent to own works all depends on how the process is spelled out in the agreement. To give you an idea how a typical rent to own process works though, an example would be:

  1. Every month, the renter pays the rental fee as it is set in the rent to own agreement.
  2. The owner of the home sets aside a pre-determined portion of the rental payment as a part of the down payment, if the renter chooses to exercise their option to buy.
  3. After renting the home for one year, the renter decides to exercise their right to buy.
  4. At that time, the renter may continue to make payments to seller, if the seller chooses to hold the mortgage on the property.
  5. If the renter wants to apply for a traditional mortgage, the renter would do so and then the mortgage lender would pay off the seller and hold the mortgage on the property.

Rent to own situations can be a very beneficial way to buy a home. The key element to the deal working out the way it should is to have the rent to own agreement drawn up from the start.

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