Renting-to-Own Payments vs Mortgage Payments

One of the first questions we are always asked about Rent-to-Own home sales is how the payments are different from a traditional mortgage.    While there are quite a few differences between a traditional mortgage and a rent-to-own at the end of the day a rent-to-own home is just a different way of purchasing a home.    Think of a rent-to-own home as a way for you get into the home you want to buy before you actually buy it.   You’ll start of the process by signing a lease purchase agreement.  This agreement states that you’ll have a set period of time to rent out the home and when that time has passed you will then take out a mortgage and purchase the home. 

The primary distinctions between the two are all at the beginning of the process.  At the start of a rent-to-own home purchase you will rent the home from the owner.  Usually this rental period last three years though it could be up to five years depending on the terms of the rent-to-own agreement you’ve made.   Once the rental period is over you would move forward with the purchase option.  At this next  stage the process becomes exactly the same as a traditional mortgage.   By this time you should have built up the credit needed to apply for a loan.  In some cases showing the bank three years of good payment history can also help you qualify for a mortgage.   A bank will typically be more willing to lend a buyer the money if they can show a good history of making the required payments and a decent credit score.

You might be asking yourself “Do the rent payments apply towards the purchase?”  In most cases yes.  It depends on the agreement but in the vast majority of rent-to-own home agreements the rent payments you make are applied towards the purchase price of the home at the end of the “lease”.   In addition, any deposits made are also applied to the purchase as well.   The only fees associated with a rent-to-own agreement which are not applied toward the purchase price of the home is something called an “option fee”.  The option fee is money paid to the owner so that you aren’t legally bound to purchase the home after the rental period.   This gives the owner peace of mind if you move out and will safeguard you against any legal penalties  should you decide that you want to move out and not purchase the home at the end of the agreement.   The option fee is an extremely important part of any rent-to-own agreement.

Keep in mind that rent-to-own homes are not for everyone.   These agreements are for those who will be ready to buy a home in the next three to five years and not for those who are already qualified for a mortgage.   If this sounds like something you’re interested in pursuing then please sign up and take a look at our rent-to-own home listings today.