What is a rent-to-own home?

A rent to own home is an alternative to a traditional mortgage and they are usually more popular among sellers during times when the housing market is unpredictable and fluctuating. Rent-to-own homes are similar to rental agreements with the difference being that the renter will have the ability to purchase the home at the end of the lease. Lease periods are negotiable and vary depending on the contract. The lease period gives the potential buyer time to build up credit or savings so they are financially prepared to purchase the home.

A rent-to-own lease agreement can enable a cash strapped buyer to pay a small deposit, rent and usually a rent premium, to live in the home immediately. When the lease period has ended the buyer will be able to purchase the home. Rent-to-own deposits are typically between 1 and 5 percent of the property price. As in a typical rental agreement the rent paid goes directly to the seller but the rent premium goes towards the down payment on the home. There are some key differences in the lease terms that are important to note. These difference are referred to as a lease option and a lease purchase.

Lease Option

A lease option gives the buyer the choice to purchase the home at the end of the lease period. This option enables the buyer to build up credit and savings before making the decision to purchase. A lease option also gives the buyer time to make an informed decision about purchasing. Also, a lease option agreement provides the seller with a more secure situation than that of traditional a traditional rental. If the buyer decides not to purchase the home, the buyer will lose the deposit and the rent premium money already paid on the home.

Lease Purchase

Unlike the lease option, a lease purchase locks the buyer into the agreement to purchase the home at the end of the lease term. While this type of agreement provides the most security to the seller they should be aware that the buyer may not have built a significant savings or did not build enough credit to purchase the home. If the buyer cannot follow through on the obligation to purchase, then both parties may be stuck in a legal battle. A successful rent-to-own wholly depends on a solid and fair contract between the buyer and seller.

If you're looking for a rent-to-own home be sure to use our rent-to-own home search to find homes in your local area.

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