What is a Rent-To-Own Agreement?

There is a traditional route on how homebuyers can own a house and that is through mortgage. We can pay the house monthly in installments if we cannot pay for it in cash. But we need to have a good credit score and we need a certain amount of cash for downpayment. But in rent-to-own agreement, there is no need for downpayment. A rent-to-own agreement is a rent-to-own contract where the renter and owner agrees to a lease-to-own agreement or lease-options. It states that the buyer can rent the house in a particular time, then can buy the house after the lease expires. In other words, you can pay your rent throughout the lease and can later buy the house if you want. The buyer can have the option whether they would buy the house or not. Rent-to-own agreement has two parts: the lease to own contract and the choice to buy the property later. It is a good alternative on having a house. Lease-option gives you the right to purchase the home while lease-purchase agreement requires you to purchase it.

Want to have a rent-to-own contract? In this Century 21 rent-to-own times, there are a lot of ways on how to find rent-to-own homes. Just type in Google – “rent to own near me”, “houses for rent near me” or “rent to own home near me”. And you can have your choices of rent-to-own lease agreement. A rent-to-own home listings can be shown to you. There are also rent-to-own websites where you could search. Rent-to-own homes are currently now in trend, so you might as well can try it if you are looking for a house to live. You can rent and have a chance to own that house later if you want.

Components of a Rent-To-Own Agreement

What really is a rent-to-own agreement and what should we know about it? How will you respond to rent-to-own programs to have rent-to-own apartments or houses? You may want to know its components.

You can have the lease-option or lease-purchase. You have the right to buy the residential property that you will be renting with the lease-option contract but you are not obliged to buy it. You can rent the property as long as you want until the lease runs out. While you are obliged to buy the house after you rent it if you will choose to have a lease-purchase contract. It is completely up to you which lease-to-own agreement do you prefer. Note these two rent-to-own contracts and know which is more flexible.There is a non-refundable option fee. There is an option period where the buyer can terminate the effectivity of the contract. It was an option when the buyer do not want to rent anymore. There is a fee for it called Option Fee. It is a certain amount of money offered by the buyer to the seller. Option fee is also called option money or option consideration. It also gives the buyer the option to purchase the house at some date. The fee is negotiable and without a standard rate. But it is normally 1% to 5% of the total price of the house.The buyer may responsible for the home maintenance. The maintenance and house repair should be clearly stated in the terms of your agreement. Although the landlord is responsible for the homeowner’s fee, taxes, and insurance, the buyer may have responsibility about repairs that should be done for the house. Things like repairing the roof or electricty, taking care of the yard, and cleaning the gutters must be done by the buyer if they would agree on such things.The contract must be clear about buying the property. If the contract is a lease-option agreement and there comes the time that you want to purchase the property, you will need a mortgage or any financial way to pay the full amount of the house. If you decide not to purchase the house or cannot find a financing when the lease term has ended, you will move out of the house just like in an ordinary situation of house rentals. The option money will be forfeited and the rent credit that you have earned will be lost. But you will not be obliged to further continue renting the house or buy it. But if your contract is a lease-purchase agreement, you are legally obligated to purchase it. The seller can sue you if you are not willing to buy the property. It is why lease-option contract is more preferable than lease-purchase contract.The percentage of the rent will be the rent credit. You are going to pay the rent on the whole lease term.  But a certain percentage of it will be your rent credit according to what you and the seller had agreed in the contract. If you agreed on 25%, then the purchase price will be decreased by the 25% of your rent each time you pay for it. For example, your rent is $1500. In three years, you will have a $13500 rent credit ( $1200 x 0.25 x 36 months).

Steps in Setting Up a Rent-to-Own Agreement

When you buy a house, a sale happens after a contract is agreed upon and the documents are signed.  But how can we make a rent-to-own contract?

Step 1 Establishing the Framework of the Rent-to-Own Agreement

You must first hire a lawyer. Because you are entering a contractual relationship with the seller, you will have legal duties and concerns about your rights. Therefore, you will need a lawyer that can guide you through the contract process. Estate lawyers have good knowledge about rent-to-own contracts. You can have one through referrals. You can also contact the state bar and they will give you a lawyer after telling them the issue. Then analyze the requirements of your agreement. Your contract must have an offer, clear in acceptance, clear in consideration, and must have mutuality. The contract must be agreed upon, so talk to the other party about their expectations before drafting the contract. Discuss the terms about the rent, the option of the purchase, how you will buy the house, and what you will do in case disputes arise.

Step 2 Make a Written Contract

Have a preamble and start your contract with it. This includes the title of the contract, the date when you made it, and both parties involved. Then create recitals. Lay out the parties’ understanding of the contract. Then manifest and define the agreement. Include terms about the length of the lease and how much will be the rent and the rent credit. Write the purchase option. Be clear on the purchase price and the obligations under it. State maintenance and repair rules. Do not forget the party obligations and the resolution cause. Then leave space for signatures.

Step 3 Execute the Agreement

When the agreement is completed, offer it to the other party. Negotiate if you want to make changes. Then sign the contract.


Are Rent-To-Own Agreement Real?

Yes, it is real. It is an opportunity to have a house when you cannot afford a downpayment. It will give you time to have a good credit to be able to have a mortgage.

How Much Does it Cost to Have a Rent-To-Own House?

It depends on the market value of a house. Both party estimate the worth of the house after the lease. It will be the rent plus the premium payments. The option fee is usually 5% of the purchase price.

What are the Qualifications of a Rent-To-Own Agreement?

There is no major qualifications. They will just know if your income is stable, have a background check, and evaluate your credit score so that they will know if you can get a mortgage.

Rent-to-own agreement may be so useful at these times. It is an alternative that we can choose because we do not have much money to offer. We can rent and have the chance of owning our homes at the same time. We just need to be patient and to adhere with the contract. In so little time, the lease will end. We can buy the house and have the pride to call it our own.