The Processes Involved In Rent to Own Homes

When it comes to the home purchase, you will normally need mortgage in order to finance the purchase. However, there are several prerequisites which you will need to fulfill in order to purchase a home this way. For instance, you will need to have good credit score and enough money to make a down payment.

The second option you can go for is the rent-to-own option. Using this option, you rent a home and purchase it before the lease expires. There are two agreements involved in a rent-to-own agreement; i.e. a standard lease agreement and an optional agreement to purchase the home at the end of the lease. However, the terms and conditions and other factors make the process a bit complicated for the ones looking for simpler home purchase options.

Option money

If you want to purchase rented home through rent-to-own option, you will have to pay option money to the seller. It is the fee which is nonrefundable and you pay it to tell the seller that you are interested in buying the home. After paying this fee, you get the option to purchase the rented home by some date in the future. Typically, this fee is the 2.5% to 7% of the total price of the home. In many cases, the option money is applied to the actual purchase price when you pay it to make the purchase finally.

Read the contract carefully

The contract is going to be prepared only by the seller and you will need to follow the terms and conditions mentioned in that contract. If you are going for the lease option, your contract gives you the right but not an obligation to purchase the home at the end of the lease. Thus, you can walk away without buying the home if you do not want to purchase the home

On the other hand, a lease-purchase option binds you in an obligation to purchase the home at the end of the lease. It means that you will have to purchase the home under this agreement whether you can afford or not. Since this contract may be quite complicated than what it may seem, you need to discuss about this agreement with your attorney before the signing the contract.

The purchase price

It should be specified in a rent-to-own agreement when and how the price of the home is to be determined. In some cases, the purchase price is determined at the start of the contract. In other cases, the price is determined at the end of the lease agreement. It mainly depends upon the market situation.

Know if your rent can help you in buying the home

You can also specify if a portion of the monthly rent can go into your credit which you could use while purchasing the home. For instance, the monthly rent you are required to pay every month is $1200. The 25% of the rent is credited towards the purchase price of the home. If it is a 3-year lease agreement, you are going to earn $10,800 rent credit at the end of the lease. It means that you can deduct the credit from the purchase price. When you go for such agreements, you typically pay higher rent so that a reasonable portion of rent could be credited to the purchase price.

Rent-to-own is the great way to purchase a home if you want to avoid getting into the troubles of mortgage. You will have an adequate time period to arrange money for the purchase. Moreover, there is an appropriate room for flexibility in a rent-to-own agreement. All you have to do is to make sure that you know well about the deal you are making.