Buying a home the traditional way has its ups and downs. On the ups it is really quick and you will be home once the deal is closed. On the downs, you will need a good credit score before you close the deal (not everyone has that). It means turning to mortgage. But what if there was another way to own a home without buying it in the first place? Yes this is possible, rent to own homes is your next chance to have a home with no much strings attached. So what is it and how does it work?
What is rent to own homes?
Rent to own is an agreement whereby a buyer signs a contract to rent a home for a given period before exercising an option to purchase the home before the period of their lease expires. It does not bind the buyer to actually make the purchase as agreed since they can opt out. But this give the buyer a good chance to have a taste of a would-be home before buying it. It gives you time to get your finances right probably several years before you buy your dream home while in the mean time you are living in it.
In a rent to own home arrangement, the buyer pays a onetime non-refundable amount. This is called the option consideration or option money. This one gives the potential buyer a claim to buy the home in the future. Getting right the wording in the contract is very crucial. When it says “lease option”, the buyer has a legal claim to buy the house at the expiry of the lease period. But they are not obligated to buy so the contract will expire once the lease period is over. The buyer loses any claim to the purchase as well as any money paid towards the same cause. On the other hand when the contract says “lease purchase” then the buyer not only has the right of purchase but also is legally obligated to buy the house at the expiry of the lease.
During the lease period the buyer will be paying monthly rent fee as agreed in the contract. Part of the rental fee goes to purchase price. This accumulative amount goes into the credit of the buyer and will be deducted from the final purchase price. The lease period ranges from 1-3 years.
Rent to own process
The rent to own process is a legally binding contract. A buyer approaches a seller and expresses the wish to rent a house with a desire to buy it at a later date. From there a contract and terms are worked and agreed between the two parties. Among the terms agreed is the monthly rent, the period of lease, and the purchase clause. On the purchase clause, the buyer may or may not be obligated to buy the house at the end of the lease period. If it says lease purchase then the buyer has to hold the deal to the end of the bargain and that is buying the house. If it says lease option then the buyer is free to walk away from the purchase once the lease period expires.
For anyone who has the dreams for a decent house but they cannot afford it now, there is a way towards making that happen. Rent to own will give you the chance to live in your dream home without buying it. But it comes with a fair share of risks. You can lose your money or get sued for not buying the home. To avoid that, reading and understanding the contract is very important.