Rent To Own, also known as Lease/Purchase, Lease With Choice to Purchase, Rent To purchase, or a number of other terms, has become a very popular method for who owns a home to sell it to some potential buyer. Especially in this period of real estate uncertainty, various ways of financing and home purchasing were certain to spring up. Rent to own has existed for a while, but is gaining more and more popularity over the years, and credit gets tighter. While it is similar to owner financing there are some differences.

The typical Rent To possess Home agreement usually begins with a rent/lease period and includes an option to purchase the house at the end of the word.

While there is no standard for a Rent To Own Home Agreement, and the laws differ in virtually every state, many contracts contain common provisions. Generally the contract allows a tenant to become a homeowner if certain the weather is met. Those conditions are usually getting the tenant and prospective buyer to pay a preliminary Option Fee and a Monthly Lease Payment for the contracted term.

Rent to own

At the end from the rent to own/lease period the tenant has the option to buy the home for a specified amount. This obviously depends upon the mark buyer having the ability to secure a loan through a bank, mortgage lender or setup arrangements using the house owner where they carry the note. This has benefits for both buyer and seller, but requires a strong seller to be able to stomach the risk.

The choice To buy

The Choice to Purchase can be contained within the Rent To Own, Lease Purchase Agreement, or exist as a separate contract. This provision normally stipulates the tenant/buyer's right to purchase the home for any specified amount at given time, usually end of the lease period. This amount is entirely negotiable, and may be a sticking point in the agreement, as the wild fluctuations in the housing market of late allow it to be tough to predict what the market will look like after the term. The fee mounted on this referred to as Option Fee.

The Option Fee

Not to be confused with a renters security deposit, an Option Fee is generally paid at the start of the lease period, and it is a fee paid for the chance and to buy the home at the end of the term. This fee is generally not refundable. You may however, be able to have all or perhaps a part of it applied like a credit toward the purchase price of the house in the event you execute the buy.

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Monthly Rental Credit

One of the most attractive parts of the typical rent to possess agreement is really a provision that sets aside a part of the monthly payment towards the acquisition of the home. This is called the Monthly Rental Credit. This amount could be wildly different in every case, and can sometimes up to 50% of the monthly rent payment! Obviously, a chance to negotiate as large a portion as you possibly can at first will have a dramatic impact on the total amount of cash you end up paying for the house.

Clearly the best benefit to the tenant/buyer has been in a position to start building equity in the home while they're renting! When compared to a thirty-year amortization schedule it always builds equity quicker than a standard mortgage. It's also wise to realize that if the option to buy the home is not exercised then the credit isn't applicable in any fashion to the renter.

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