The Rent-to-Own Agreement and What to Expect

May 28, 2015

rent to own a home

The possibility of changing housing markets and strict lending criteria make rent-to-own agreements a practical option for today’s potential homeowners. A rent-to-own agreement, or lease-purchase, is a binding agreement that prevents the owner from selling to any other buyers and locks in the price so that the current renters can eventually own the property for the anticipated price.

For first-time buyers, the rent-to-own alternative is a great way to not only save up money for a down payment, but also to manage expectations of what it’s like to own a home without the financial burden of committing to a mortgage. Furthermore, these contracts are particularly useful to former home owners who may find it difficult to obtain a mortgage due to poor credit, or inability to sustain employment for the required amount of time necessary to prove they are capable of the responsibility of homeownership. In fact, some landlords require their renters to enroll in classes that teach financial responsibility and planning if they have credit challenges to assist them as they build towards owning a home.

Terms of the agreement should be spelled out in the contract, such as who will pay property taxes, insurance and other necessary fees during the lease period and who will pay for general upkeep and utilities. Typically, these terms will vary so it is always a good idea to have an attorney review the agreement before you find yourself contractually obligated to uphold the landlord’s requirements for the next 1 to 3 years.

If the option of a rent-to-own agreement sounds like the perfect path to take on the road to owning your own home, then great! You’re one step closer to achieving your goal. However, you must do your research before you commit to the deal in order to avoid potential hazards that may arise on that path. At the end of the agreement, the landlord has the option to not sell you the property that you have been expecting to own, or title issues with the property could prevent the sale. An even worse scenario could be that you are unable to qualify for a mortgage, which could mean forfeiting your option payments, paying thousands of dollars for extra payments incurred throughout the lease period and further damaging your credit.

If you are still unsure whether renting-to-own is right for you, the recent article, “Is Buying a Home Using a Rent-to-Own Agreement a Good Idea?” from the Equifax Finance Blog gives tips and other advice to help make a more educated decision about this attractive option for today’s home buyers.

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