An Introduction to Rent-To-Home Contracts


An Introduction to Rent-To-Home Contracts

There are many ways to purchase a home. If you have poor credit and are unable to qualify for a loan, then a rent-to-own might be an option worth considering. A rent-to-own home is a home that you lease for a period of time then purchase once the lease has ended. This arrangement requires a contract. In this article we'd like to discuss a few of the different elements found in a typical rent-to-own home contract.

Typical elements found in a contract:

  • An Option Fee, is a fee paid upfront at the start of the lease and is usually around 5% of the purchase price. This fee provides the renter with an option to purchase the home at the end of the lease. It also, ensures that the seller cannot sell the home to any other party before selling to the renter. This fee can also be used as credit for the down payment once the renter decides to purchase.
  • An Escrow is an account which holds funds such as the option fee for use when the purchase is made.
  • The Eviction Process are the guidelines used when and if an eviction is necessary. This must be very clearly laid out and explain exactly what circumstances are justification for eviction.
  • The Maintenance indicates which party is responsible for upkeep on the home during the lease period
  • The Purchase Price is the agreed upon price of the home. Typically, when an option fee is paid upfront the purchase price is locked in and cannot be changed.
  • Rent Premium is an agreed amount on top of rent that will be allocated towards the purchase price, much like the option fee.
  • The Lease Period is the duration of the lease before the purchase. This is a negotiable item but is generally between 1 to 5 years.

What makes a rent-to-own different from a tradtional mortgage.

  • A rent-to-own home gives the opportunity to live in the home before you actually buy it.
  • A rent-to-own home can provide you with enough time to prepare for homeownership
  • A rent-to-own home has a lower down payment to start. The standard for a mortgage is 20% down. The standard for a rent-to-own is 5%.
  • A rent-to-own home allows you time to build up credit to qualify for a loan.
  • A rent-to-own home allows a portion of the rent to be used as part of the down payment when you make the purchase at the end of the lease.

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