Rent to OwnThe Ultimate Guide for

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IntroductionGuide

If you want to buy a house but are not in a place financially to do so, then a rent-to-own program may be for you. The program was put in place to help individuals who cannot ob-tain a home loan due to lack of down payment or poor credit. When you pay rent, you are paying a landlord money to lease a home, apartment, townhouse or other living space for the month. When you opt to participate in a rent-to-own program to buy a house, you still pay monthly rent with the option of buying the home when you are ready. This guide will give you an overview of everything you need to know about using rent to own as an option to buy your next home.

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ContentsTable of

Benefits of Renting to Own

The Buying Process After Rent to Own

Understand the Rent-to-Own Terms

Types of Rent-to-Own Contracts

Research the Home and Seller

Maintenance on a Rent-to-Own Home

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Renting to OwnBenefits of

The idea of renting to own your own home is appeal-ing for many reasons. It is an ideal option for low-in-come Americans or anyone who has poor credit or is working to build up a credit history. These are some of the benefits of renting to own your home.

Monthly Payment is an Investment

Unlike renting, where you are paying to live in a home or apartment without any return on investment, rent-ing to own a home allows you to reap the benefits someday. Instead of writing a check to your landlord to never be seen again, you are actually making small monthly payments toward owning the home. This money can be put toward the down payment or the overall sales price of the home.

Option Deposit

This is a small fee (also known as option money) that is paid to your landlord upfront. The amount of the option deposit is determined by your landlord. This money is nonrefundable but is put toward the final payment when you buy the home. This results in less money toward buying the home.

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Smaller Down Payment

You still need to supply a down payment when you are ultimately ready to buy the place you are renting to own. Instead of the standard 20 percent, you can put down a lower amount like 3.5 percent of the over-all home cost. This makes it easier for you to afford. Keep in mind that you need to pay for closing costs, in addition to the down payment, unless otherwise discussed with the seller. A smaller down payment makes it more attainable for you to save extra cash for the closing costs.

More Time to Get to Know the Home

The landlord still owns the home while you are partic-ipating in the rent-to-own program. Think of this time as a chance to get acquainted with your eventual per-manent residence. You can dream about which walls you’d like to knock down or come up with a new color scheme for the guest bathroom. While you won’t be able to make any actual improvements or repairs un-til you own the home, consider this your home reno-vation planning period.

You Don’t Pay Property Taxes

As a renter, you are not responsible for paying proper-ty taxes on the home. Once you are the owner of the home, then you will assume the task of paying the property taxes. These are often built into your month-ly mortgage costs or can be paid as a lump sum all at once. For now, you can enjoy not having to pay prop-erty taxes while you rent to own. This also gives you a better understanding of the additional costs that are associated with home ownership.

Building up Trust

The seller has the final say as to who he or she sells the home to. As you make your rent payments on time each month, the seller will feel more comfort-able with relinquishing the home to you when you are ready to buy it. The seller may even ease up on the price or closing costs once you have proven yourself as a reputable buyer.

Insignificant Upkeep

You can enjoy all of the benefits of renting when it comes to the overall maintenance of the home with-out the headache of having to fix anything. Although you are renting to own, you are not responsible if the dishwasher needs to replacement or the toilet starts to leak. Your landlord takes care of fixing any prob-lems as long as it is due to normal wear and tear and not a direct result of something you did. Once you be-come a homeowner, you need to take over the main-Types of Rent-to-Own Contracts

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Rent-to-Own ContractsTypes of

Once you have decided that you would like to rent to own your home, it’s important to understand the dif-ferent types of contracts that are associated with this deal. Here are the basics of what you need to know when it comes to rent-to-own contracts.

Lease-Option Contract

This type of agreement contains wording that allows you to the option to purchase the property. The lease option usually states that the seller and tenant must agree upon a purchase price of the home before the lease can be validated. Usually, the timeline for the lease-option contract is anywhere from one to three years. It can be shorter or longer depending on what the seller and buyer agree upon before signing the contract. There is no obligation for the tenant to buy the property once the lease is up. The contract sim-ply gives the tenant the option to buy the home if he or she chooses to. Nobody else can buy it while the lease-option contract is still valid.

Lease-Purchase Contract

The lease-purchase agreement not only includes a rental lease, but also a sale contract for the property.

This lease states that the tenant will buy the property from the seller/landlord at the end of the rental period as stated in the lease. Like the lease-option contract, the lease-purchase contract is usually somewhere in the ballpark of one to three years. The tenant (or future buyer) gives the seller (landlord) option mon-ey. This money secures the tenant’s right to buy the property at a later time.

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Rent-to-Own TermsUnderstand the

It can be hard to decipher the legal jargon of rent-to-own contracts. Make sure to have a lawyer, realtor or a trusted and knowledgeable friend review the rent-to-own documents before you sign and submit each one.

• Monthly payment. Carefully review the lease to see what portion of your monthly rent payment goes toward the final purchase price.

• Repairs. Identify which party (the seller or buyer) is responsible for making repairs during the lease.

• Your obligation to buy. Go line by line through the contract to get a full understanding of what your legal obli-gations are when it comes to buying the home at the end of your lease.

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Home and SellerResearch the

Before you commit to buying a home, you need to do your homework. There are several things you need to look out for in regards to the home’s condition and the seller’s history. Make sure you do your research so that you can get the best deal possible on the home of your dreams. This step is also crucial so that the seller does not take advantage of you during the pro-cess. The following are factors that should influence your decision to rent to own a home:

• Construction of the home. Is the home in good condition? If the home is old, has it been well maintained? These are just some of the ques-tions to ask yourself when you are considering a rent-to-own agreement.

• Look for bugs. Termites, ants and other insects can be a sign of serious problems with the home. If you see black dust piling up near baseboards or windows, that can be a sign of termites. Make sure the home is properly sealed off from the in-side and outside to avoid bugs.

• The seller’s temperament. Is the seller pleasant to deal with? Or is the seller pushy and urging you to sign documents you are unsure of? If it seems like the seller is trying to speed up the process, that’s a red flag that you need to take a step back from this property. Always go with your gut.

• Search property records. Property sales are pub-lic information. Use your landlord’s legal name to see how many properties he or she owns. Check to see if there are any foreclosures or any oth-er signs of property mismanagement. If so, this may not be the seller for you.

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pocket until he or she owns the property. Once the tenant owns the home, he or she is free to proceed with whatever renovations and improvements he or she deems necessary.

Read Carefully

If your lease-option or lease-purchase agreement states that you are responsible for any repairs on the home during your lease, do not sign the document. It’s impossible to know what could go wrong during the rental period. Since you are trying to save up mon-ey to purchase the property, you should not agree to sink money into something that is not yet yours.

When you rent to own a home, you are essentially making a promise to the seller that you are going to purchase the home at the end of your lease. This can make it tough to know which party is responsible for making repairs when a household appliance stops working or there is a leak in the roof. Here’s what you need to know when it comes to maintenance on a rent-to-own home.

Repairs and Fixes

Unless otherwise determined in the lease, the seller is responsible for fixing anything that breaks for the du-ration of the lease. Even if the tenant had committed to buying the home, as long as the seller still owns the home, he or she is responsible for the upkeep. This is typical of most rent-to-own situations.

Improvements

Renovations such as laying down new sod or knock-ing down interior walls is not included in the rent-to-own contract. The seller functions as a landlord for the duration of the lease and is not responsible for cosmetic updates. Generally, the potential buy-er should not pay for any cosmetic updates out of

Rent-to-Own HomeMaintenance on a

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Rent to OwnThe Buying Process After

When your rental contract is about to expire, these are the typical steps to take to complete or not com-plete the purchase process.

Lease-Option Contract

If you have a lease-option contract and want to buy the home, you need to go to a bank and get financing to buy the home.

The bank evaluates your money situa-tion and determine if you can afford to buy the house.

Prepared to present all your bank state-ments, several pay stubs, tax records and other financial documents.

If you have a lease-option contract and do not want to purchase the home, you forfeit any option money that you paid up front, as well as any rent credits.

Once that’s been determined, the bank sends a letter stating the amount you’ve been approved for.

From there, you, the seller and your bank work together to close on the home. It’s a good idea to bring in a realtor to help with closing costs and make sure the process runs smoothly.

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Lease-Purchase Contract

The buying process is the same as the lease-option contract. With this deal, you are most likely legally ob-ligated to buy the home at the price that was agreed upon when you signed the lease. This can be a prob-lem for some renters because they may not be finan-cially ready to take on the costs of owning a home. These costs include a monthly mortgage, home in-surance, regular upkeep and any improvements that need to be made. If you find yourself in this situation, contact a lawyer to see what your options might be.

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