Over the recent years, rent-to-own homes have proven to be very popular among buyers. For those who don’t want to save a lot of money over a long time to purchase their dream home, this is the alternative for them.

Instead of having to spend thousands of dollars every month on a rental, you can acquire your own home just with a few more requirements involved.

Here is everything you need to know about rent-to-own homes.
 

What are rent-to-own homes?

Rent-to-own homes are homes that you firstly rent over a certain period, and then you activate a clause of ownership. The amount of time involved in rent-to-own homes can either be a few months or even years, depending on the agreement between the seller and the buyer.

In this homeownership process, the home seller agrees to receiving rent over specified intervals and deducting it from the original price tag of the home. There are two types of agreements involved in a rent-to-own deal, a lease-purchase agreement and a lease option agreement.
 

Lease purchase agreement

In this type of agreement, the seller and the buyer are bound together by a sale. That means that the buyer rents the property for a specified amount of time with an obligation to purchase it.

1. Lease option agreement

In this agreement, the buyer has an option, whereas the seller doesn’t. This agreement dictates that the buyer rents the house with the option to buy. Meaning they can choose to back out of the deal when the lease is up.
 

How rent-to-own agreement works

In a rent-to-own program, the key element is negotiation. That means that there are no specific numbers or percentages in the purchase. However, there are a few components that make up a rent-to-own agreement. They include;
 

i. The purchase price

In a rent-to-own agreement, the purchase price is determined in two ways. In the lease option agreement, the buyer and the seller agree upon the purchase price and payment terms once the lease is up.

However, in a lease-purchase agreement, the buyer and seller have an agreement before the signing of the deal.
 

ii. The rent payments

In rent-to-own homes, the buyer agrees to pay a certain amount of rent to the seller every month. Unlike the ordinary rentals you might find in the real estate market, the amount of rent paid for a rent-to-own home is a bit higher.

This is because these rent payments will go towards the final purchase of the home. They are meant to be deducted from the price tag of the home.
 

iii. Maintenance and repair costs

Since the buyer assumes immediate ownership of the home after the agreement, they cover all the maintenance and repair costs associated with the home.

This means everything from leakages in the sink, bathroom, pipe bursts, flooding, faulty air conditioning systems, among others, is your responsibility.
 

iv. Option money

This is a one-time and non-refundable payment that the buyer pays to the seller for the opportunity to buy the house. This amount is often a percentage of the asking price of the home.

If you opt to buy the house in the long run, this amount can be deducted from the final price. In a rent-to-own agreement, this amount can also be negotiated upon, more so in the lease-purchase deal.
 

v. Lease term

This is the period that is agreed upon between the buyer and the seller for the buyer to make rent payments before activating the purchase clause. However, if the lease term ends and the buyer decides not to activate the purchase close, the option to buy expires.
 

vi. The closing agreement

When the lease-term has been exhausted and the buyer decides to activate the buy option, a closing date is agreed upon when granted complete ownership of the home. The buyer can, however, take a loan to pay the remaining amount of the price.

The seller also credits the amount of rent and option fee paid to the final price. This should, however, be before the closing date. If the buyer does not feel like proceeding with the deal, they can terminate the contract.

This comes at a cost because the buyer stands to lose their option fee and the additional rent they have been paying for the home.
 

Conclusion

What makes a rent-to-own agreement more convenient for buyers than other homeownership options is that everything is negotiable. However, it’s very important to employ the services of a lawyer and a real estate agent during the negotiation process so that you can get favorable terms.