Renting to own is quite simple. In a typical rent to own a home contract – a renter will have the option to buy the home after a pre-set period of time. The renter does not have to buy the home, it is simply an option. This works out great for many renters, because it allows them to start building equity in their purchase, should they decide to buy the home.
Rent to own will grow exponentially when mortgage rates return to normal levels. The option of renting with the option to buy and actually build equity is one that many people find appealing. Many people feel like they are literally throwing their money away on rent every month, and that is the main reason for seeking out a rent to own homes opportunities.
WHAT IS A LEASE PURCHASE AGREEMENT?
A Rent to own or Lease Purchase agreement allows the seller to rent the property to the buyer until closing. A lease purchase agreement is generally used when the potential buyer is serious about purchasing the property but is not immediately ready and/or able to close.
HOW LONG DOES THE BUYER HAVE TO CLOSE?
The maximum term of the agreement is negotiable (one of the fill-in-the-blanks spaces on the contract), but a common length is 12 to 24 months. The contract does allow the buyer to close sooner.
DOES THE BUYER PUT DOWN A PURCHASE DEPOSIT?
Yes. The Rent to own contract calls for the buyer to make a purchase deposit, which shall apply toward the buyer’s down payment, but is non-refundable in the event the buyer defaults. Three percent (3%) of the purchase price is suggested as a reasonable purchase deposit. However, the amount of the purchase deposit is negotiable. It is not uncommon for this amount to be significantly higher or lower.
IS THE PURCHASE PRICE TODAY’S VALUE OR THE FUTURE VALUE?
Most buyers and sellers prefer to set the purchase price up front. However, the seller is relying on the buyer to close with cash or a loan before the deadline they both agreed to in the contract. Therefore, if the seller agrees to extend the contract, the lease purchase agreement calls for an increase in the purchase price.
WHAT ARE THE ADVANTAGES FOR THE BUYER?
Buyers love rent to own option because it gives them time to save up for a larger down payment, clean up past credit problems or time to sell another home. Buyers can also receive a “forced savings plan”, since a portion of the monthly rental payment is usually credited toward the purchase price. The amount of the monthly rent credit is one of the negotiable terms of the agreement.
WHAT ARE THE ADVANTAGES FOR THE SELLER?
Since they are allowing the buyer some flexibly on the closing date, sellers generally get today’s top market value for the property. Monthly lease payments may exceed market rents and the buyer is typically required to handle all the repairs and maintenance, since they are the future homeowner. And obviously the seller gets relief from paying the mortgage on a vacant property.