The Benefits of Rent to Own for Your New Home

You can move into a house by buying it, renting it, or by the rent to own method. All three ways have advantages to them, but not many people understand the rent to own method.

The ins and outs of rent to own

Rent to own has a contract just like a home purchase and a home rental. With a rental agreement, the term of the lease, and whether it is renewable, is specified. With a purchase contract, once the paperwork is completed, the house belongs to the buyer. With a rent to own transaction, both renter/buyer and seller enter into a contract that agrees to the possibility of a sale in a specified period of time (generally in one to five years).

The renter/buyer and the seller come to an agreement on the sales price of the house, and it is listed in the contract that is signed by all parties to the agreement. Once the renter/buyer is ready to purchase the house, the agreement becomes a sales contract.

During the time of the transaction, while the renter/buyer is living in the house, the renter/buyer makes monthly payments to the seller. In most cases, part of these payments will go toward reducing the sales price of the house when the renter/buyer decides to purchase the house.

At the beginning of the rent to own transaction, the renter/buyer pays the seller an option fee, which is usually 5% of the purchase price of the house. This option fee gives the renter/buyer the opportunity to purchase the house at a later date. Despite the option fee, the renter/buyer is under no obligation to purchase the house.

Nor is the option fee refundable if the renter/buyer does not ultimately purchase the house. If the renter/buyer does purchase the house, the option fee is applied toward the purchase price.

With a rent to own transaction, it is important to deal with a reputable real estate firm and a reputable seller, as there definitely are rent to own scams out there.

Benefits of a rent to own agreement

There are times when a rent to own agreement is very beneficial to both buyers and sellers:

Benefits of transactions to buyers:

1. Buyers with borderline credit can use a rent to own agreement to increase their credit score enough so they can be able to purchase the home.
2. With rising housing prices, a renter/buyer can lock in a purchase price with a rent to own agreement that would be higher at a later date when he or she is ready to buy.
3. Prospective purchasers facing possible job transfers can enjoy nice homes that can be purchased if they are not transferred,
4. Buyers transferring from another location can get to know both the home and the neighborhood before buying a house.
5. If buyers/renters find a house is not as represented, they can walk away from the property.
6. Buyers/renters coming from apartments can experience living in a house and compare it to living in an apartment.

Benefits to sellers:

1. Sellers can turn their former homes into income-producing properties.
2. Sellers get renter/buyers who have a vested interest in maintaining the property, rather than mere renters who may or may not treat the property well.

Rent to own is great for first time homeowners when they are ready to purchase a home.