First, it is important to mention that there are several different terms used to describe rent to own.
The most common terms used are:
- Lease to own
- Lease option
- Lease purchase
- Rent purchase
All of these terms are basically referring to what we are calling a rent to own home. Your geography usually has the largest affect on which term buyers and sellers use to describe the transaction. There are a few variations that you and the seller can choose from, and we will explain them in more detail later on.
Some Myths Uncovered About Rent To Own Homes
While searching for information on how rent to own works, you probably found some articles with horror stories about people getting SCAMMED. But, you might be surprised (after reading this) at how powerful and simple this option can be for you. Also, you will notice that victims who get scammed and lose money are usually committing the same few mistakes. Later in the article, you will see the critical step you must take to succeed.
So, how does it work?
I like to begin explaining rent to own by first saying this, “a house being offered as rent to own is surprisingly similar to a standard rental home. You are still considered a tenant during the term of the lease and the owner is your landlord.”
The main difference is, that the seller agrees to give you the option to purchase the house in addition to renting the home to you. This is technically referred to as an Option to Purchase. Also, instead of paying the normal rental deposit to the landlord, you will instead pay a fee called an Option Fee. The option fee is paid upfront and is non-refundable, in the event you don’t purchase the home. But, the option fee does go toward the purchase price of the house when you purchase down the road. The amount is usually 3-7% of the purchase price, but this is completely negotiable.
The Option Agreement
The option agreement states a purchase price that you and the landlord mutually agree upon and is signed along with your rental agreement. The option 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 even be 5 years or more. This option agreement is one of the most important agreements contained in the rent to own paperwork you sign.
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 happen:
- The contract expires and you no longer have the legal right to purchase the property. Further, you forfeit all rent credits(explained below) 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 Critical Step You Must Take to Succeed
If you’re serious about buying a home, here is the MOST important step: You absolutely need to begin improving your credit right away.
You may be thinking, “that’s why I want to rent to own, my credit is bad!”
But, with rent to own you NEED to qualify to purchase the home within the 12-24 month option period!
You don’t want just anyone handling your credit, that’s why the professionals at Cake Credit Repair have our vote for the best credit repair program available.
Cake Credit specializes in credit repair for people who want to qualify for a mortgage and buy a home! They can be reached at: (813) 720-8988
We especially appreciate Cake Credit Repair’s focus on personalized customer service, something you won’t find at the credit bureau offices. You’ll get one-on-one attention, which is only part of a comprehensive approach that makes them so attractive. We also really like the fact that they only charge a single low monthly fee without requiring any upgrades. One price covers everything needed to clean up and restore your credit.
If your spouse needs credit repair, you can also take advantage of a discount for spouses when you sign up together! We could go on and on about Cake Credit, but I think you get the picture. If you find ANY company you feel is better, please let us know by contacting us!
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.