I’m Considering a Rent-to-Own Home — What Are Typical Terms?
What are typical rent-to-own terms and conditions when you’re talking about a house? Here’s a guide to the important things you’ll want to know.
You’ve found the perfect home, and you’re ready to do whatever it takes to make it your own. But when you crunch the numbers, you realize you aren’t in a great position to buy. You’ve heard of rent-to-own contracts, and the current owner of the home you want is willing to work with you. Now what?
Sometimes, the best option to get into the home of your dreams is a rent-to-own deal. However, rent-to-own contracts have unique components that you might not see in other real estate agreements. So, how does the process work? And what are typical rent-to-own terms and conditions?
Step one: Talk to an expert
Connect with a top-rated local real estate agent who can help you navigate rent-to-own options near you.
The terms
1. Is your contract a lease option or lease purchase agreement?
The first important thing to understand about your rent-to-own terms is the type of agreement. You should know whether you are entering into a lease option or a lease purchase agreement.
With a lease option, you have the option (but not the obligation) to buy the home you are renting when the contract is up. According to the National Association of Realtors (NAR) website, lease-option agreements (aka rent-to-own) are generally utilized in residential real estate deals when a homebuyer would like to purchase a home, but needs to repair their credit rating in order to secure a promissory note and mortgage.
With a lease purchase agreement, you are legally obligated to buy the home when the contract is up.
A lease purchase agreement, however, “isn’t in the best interest of the landlord or anyone selling property, and it isn’t something I would ever advise any of my clients to do,” says Erick Monzo, a top-selling real estate agent from the Monzo Group serving the Detroit market.
