Rent To Own

Landlord Station Rent To Own

Rent to own is an option for purchasing a home that many tenants are investigating in this economy. Low credit scores often prevent people who make good salaries from buying a home. The low credit rates advertised today are often not available for those who do not have a high credit rating. Rent to own agreements with landlords are an alternative when conventional means for purchasing a home are not available to tenants.

How does rent to own work? A rent to own agreement is basically the same as a regular lease agreement with a few significant differences. The tenant agrees to pay rent and the standard deposits. The following things are added to a regular lease for a rent to own agreement:

1: The tenant and landlord agree on a sale price for the property. There is a fee paid to the landlord for the option to purchase. This fee is usually an amount of 1% to 5% of the property’s sale price. The agreed upon sale price is locked in for the term of the rent to own agreement. In addition, the landlord agrees not to sell the property to anyone else during this period. The option to purchase is not refundable.

2: The tenant pays an amount of money called a rental premium. That is an amount over and above the regular rental amount and is paid monthly. This rental premium is kept in escrow by the landlord and is applied to the down payment amount at the end of the lease purchase agreement.

3: The tenant agrees to apply for a loan at the end of the lease term and, at that time, purchase the house. Rent to own agreements are longer than a regular lease term and are usually a term of 2 to 3 years or longer.

Rent to own houses are a good option for anyone who believes their credit score will be higher at the end of the lease term or who knows they will have enough cash to purchase the property outright at the end of the lease term. This is not a good option if the tenant does not get a loan. In that event, the landlord can keep the option amount and the rental premium and the tenant has nothing.

The rent to own scenario has some drawbacks that the tenant should know about. If any of the terms of the lease are violated, the tenant will forfeit the option money and the rental premium and void the agreement. An example of a lease violation that would cause the forfeiture of the option and the rental premiums is making a late rental payment. In addition, if the landlord doesn’t make the mortgage payments and loses the property, the tenant would lose the option and rental premium money.

When wondering “how does rent to own work?”, understand that after the tenant pays rental premiums for a pre-established number of months, and after the tenant pays the option fee, the tenant must still apply for a loan at the end of the lease term. If the tenant is not approved for a loan at that time, the option fee and the rental premiums are forfeited. The landlord legally keeps the money and the tenant has no way to contest that in court. Signing one of these leases does not mean the tenant is signing a contract that guarantees home ownership.

Rent to own is beneficial to some tenants. There are many legitimate rent to own operations and honest landlords. If a tenant has poor credit now but believes that it will be possible to qualify for financing in the future, this could be a great opportunity. It is important that the tenant has the ability to get financing at the end of the lease. One thing a tenant should do before entering into this type of agreement is to talk to a home lender and get an opinion about the possibility of qualifying for a home loan in the future. This is helpful because the lender can often give advice about what steps to take to repair credit standing. has a sample rent to own contract to illustrate the provisions that are added to a normal lease to make it a rent to own agreement. As with all legal and financial actions taken, it is wise to research the situation and get the advice of experts before a commitment is made or an agreement is entered.

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