First, it is important to mention that there are several different terms used to describe rent to own.
The most common terms used are:
- Rent to own homes
- Lease to own homes
- Lease option
Basically, you are renting the home with a traditional lease AND you sign an option agreement.
The option agreement states a purchase price that you and the landlord/seller agree on. You have the option to purchase the home for this amount during your option period.
This agreement also details the period of time the seller is willing to give you to purchase the house. This length of time is called the option period and it’s often 12-24 months… but can be 5 years or more.
You must qualify for a real estate mortgage and purchase the home before your option period expires.
This is one of the most important agreements contained in the rent to own contracts.
Click Here for more information about the rent to own contracts.
What if I Fail to Qualify in Time?
If you are unable to purchase the home during the option period, one of two things usually occur:
- The contract expires and you will no longer have the legal right to purchase the property. Further, you forfeit all rent credits and the option fee paid to the seller.
- The option agreement may offer you the ability to extend the agreement. If this extension is offered, it typically requires a small fee and/or criteria you must meet. For example, a seller may require that you are currently qualified for a mortgage and in the “closing process” to qualify for the extension.
The Option Fee
With a lease to own you pay a non-refundable fee upfront.
This fee is called an option consideration fee, or option fee for short.
The amount is usually 3-7% of the purchase price, but this is completely negotiable. Now that the market is so weak for sellers, paying an option of 3% or less is more common.
This fee should be credited 100% to the purchase price of the home. Don’t forget to verify that the purchase price is discounted on the rent to own contracts.
The Rent Credits
Rent credits are common with a lease to own house.
It is the portion of rent that’s credited to the purchase price each month the rent is paid on time. Do not expect to be given a credit if you pay your rent late!
The credit amount varies depending on how negotiable the seller is. When you are moving into your house, make sure the amount of the rent credits are stated in the option agreement.
The 4 Critical Steps You Must Take to Succeed
Using a rent to own is an extremely powerful strategy that anyone can use to buy a home, regardless of your current credit score.
And yet, many are searching for their dream home while completely unprepared. They don’t have the critical steps and information necessary to successfully buy their rent to own home.
When you are serious about buying with a rent to own home, here are the 4 things you must get right: