When it comes to homeownership, a rent to own program is a great alternative to a traditional home purchase.  In a rent to own process, the property owner agrees to rent the home out and provides the renter with an option to purchase it at some point in the future.  Many times portions of the rental payments made will go towards the purchase of the house.  Buyers and sellers alike can benefit from the rent to own arrangement.  A growing number of people today are considering rent to own options due to the benefits.

How Does It Work

The process starts with two contracts:  a rental agreement and an option to purchase.  The rental agreement is similar to a standard lease indicating the rental price and term of the agreement (usually 2-3 years).   The option to purchase outlines the option fee.  Often times this fee ranges from  2%-7.5% of the home’s purchase price.  This fee can be paid with monthly rent and is eventually put towards the home’s purchase at the end of the term.  In the event the home is not purchased at the end of the agreement, the option fee is normally not refunded.

Benefits of Rent to Own

There are a number of reasons rent to own programs are attractive to buyers, especially those who may not be in the best financial standing. 

Bad Credit? No Problem

• Individuals considering the purchase of a home but are having difficulty qualifying for a loan due to their credit score should explore rent to own options.  The rent to own process allows individuals more time to rebuild their credit score over the course of the agreement.  During the rental period, buyers can repair their credit, reduce debt and increase their credit score.

Secure a Purchase Price

• The housing market is always fluctuating.  In markets with increasing home prices, buyers can agree to purchase the home at today’s price (the purchase will take place year later).  This may work in the buyer’s favor if the property value increases by the time they purchase the property.   If the prices fall, buyers also have the right to back out of the agreement.

Try It On For Size

• Renting a home before purchasing allows individuals/families to determine if the home is the right fit.  Neighborhoods, school systems, crime rate, and many other factors go into the purchase of a home.  Rent to own options gives buyers the opportunity to find out if there are any issues or problems with the community or the home before making any commitments.

Avoid Moving

• No one likes moving from place to place.  When individuals choose to rent to own they experience the stability of staying in the same neighborhood until they are able to purchase the home.  This helps reduce the expenses and inconvenience of moving.

Save Up

• Another benefit of rent to own programs is the time it provides buyers time to save for a down payment.  Down payments are required in the purchase of a home and run anywhere from 3.5% to 20%.  Renting to own lets buyers get the house they want while saving up the down payment and closing fees involved (if there are any) in a purchase.

How To Find Rent-to-Own Homes

Finding rent to own properties has been simplified with websites that have search databases listing all local rent to own options.  Interested parties can also try reaching out to sellers who may have had their house on the market for a while to see if they would be interested in rent to own deals. 

Sum It Up

A rent to own agreement allows potential buyers to move into a house and provides them time to straighten out their financial situation to purchase the home several years in the future. It poses a risk to potential buyers since they could end up losing money if they don’t (or are unable to) buy the property when the lease expires.  It is important that buyers read rent to own contracts fully and are aware of all the terms before making any commitments.