Rent To Own? This Is How It Works

Buying a house is a major life milestone, and it’s something to carefully consider before making your final decision. 

What is a Rent to Own Home Agreement (or Rent to Own Program)?

When you rent to own, you first pay a one-time nonrefundable option fee to the seller (this is discussed in more detail below). Then, you and the seller negotiate to set a purchase date for the home.

Defining Rent Credit

On top of the regular rent the seller could charge for a tenant who was just leasing the home, each monthly payment will have a “rent credit” added. 

Lease-Option Contracts

As the name suggests, a lease option rent to own contract simply gives you the option to buy the home at the end of the lease contract. You are in no way obligated to buy, although you’ll likely forfeit your option fee. 

Lease-Purchase Contracts

On the other hand, a lease-purchase contract is significantly more binding. These contracts require you to purchase the home at the end of the lease term.  

How Long is a Rent to Own Contract?

The length of a rent to own contract depends entirely on your agreement with the seller. Most of these contracts last one to three years. 

Do You Need a Down Payment for Rent to Own?

The short answer is that you don’t need a down payment at the beginning of a rent to own contract. However, in order to proceed with making the agreement, the seller needs some form of monetary commitment.

How Much Does it Cost to Rent to Own?

While we cover the costs in greater detail elsewhere in this article, it’s always wise to keep in mind all of the different costs you’ll incur: – Initial option fee – Monthly rent – Monthly rent credit – Costs for home maintenance and repairs (usually) – The remainder of home costs after lease (usually involves taking out a mortgage) – Down payment (after lease term) – Closing costs

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