Rent to own or lease to own is an alternate route to home ownership and a different method to sell a house. Rent to own contracts allow buyers some flexibility at a house purchase and qualification. A home seller might be able to get a higher cost for a house by supplying a lease to own option.
Identification
A rent to own home contract unites a house lease or rental with the option to purchase the house during the term of the lease contract. The buyer pays periodic rent payments during the term of the lease but can purchase the property at a predetermined price before the lease contract terminates. The vendor of the house usually receives an upfront deposit to lock in the purchase option.
Function
A rent to own contract is usually set up using a one- to – three-year lease interval. The buyer pays an upfront fee and makes periodic rental payments. The upfront fee and some of the rental payments go toward a down payment on buying the home. The cost of the home is set within the rent to own contract, and the buyer knows just how much of a deposit she can accumulate during the lease period of the contract.
Benefits
Rent to own permits buyers with no credit, poor credit or little cash for a deposit to enter into a purchase contract. The rent to own permits the buyer to set a stable payment history, accrue a deposit and equity in the house if the value rises above the contract purchase price. These factors make it much easier for the buyer to be eligible for a regular mortgage once the rent to own contract ends. The seller receives a buyer in what may be a difficult real estate market and regular rent payments before the home is actually sold.
Factors
The buyer in a rent to own contract needs to be able to acquire more-conventional home financing before the contract expires. If the house cannot be purchased the upfront deposit and rent credits toward the purchase will be forfeited. The vendor will still own the house if the buyer can’t fulfill the contract but will be able to keep the buyer’s deposit and re-lease the house. If the house worth goes up appreciably during the rent to own lease, these profits will go to the buyer, not the seller, in the event the renter ends up finishing the purchase.
Possible
A rent to own makes the most sense to get a buyer with some credit problems but will be able to clear up those in a year or two and be eligible for a conventional mortgage. The rent to own additionally allows the buyer to find out if he actually likes the home and neighborhood before purchasing it. Lease to own is fantastic for a vendor who is having trouble selling the house using conventional procedures. An investor using a several homes can also utilize lease to own as a way to be able to sell the homes at attractive rates and earn money along the way.