Rent-to-own home agreements
Dollars and Sense
If there’s ever a perfect time to consider buying a home via rent-to-own, this might be it. With a down economy, many buyers can’t get financing, and sellers are sitting on property they can’t move.
Rent to own (also called a lease-to-purchase option or a lease-purchase agreement) works like this: You rent a house with a standard lease, but have one additional agreement in place: a purchase agreement or sales contract. This document gives you the option of buying the house at some set point in the future at a fixed price. A portion of your monthly payment (usually an additional amount above the rent) goes toward a down payment on the house.
As with any business deal, there are pros and cons to rent to own.
On Plus Side
•You’re able to build up your down payment every month.
•If you have less-than-stellar credit, this gives you a chance to rebuild it.
•You can check the house and neighborhood over a long period of time.
On Negative Side
•If you decide at the end of the option period not to buy the house, you lose the extra you’ve paid every month.
• In most cases, you won’t get the tax benefit until you actually own the house.
Extra Considerations
• If there are repairs to be made in a typical landlord/tenant situation, usually the landlord is responsible unless prior agreements have been made. Be very clear (in writing) who will make repairs while you live in the house.
• If you make modifications or fix up the house and then decide not to buy it, you likely won’t get any money back.
• Try to have additional time put on the end of the option period in case you can’t get financing.
Finding homes isn’t that difficult. Start with those listed For Sale by Owner. A fast phone call will tell you if the owner is interested in a rent-to-buy situation. An owner with little equity is more likely to agree than one who has a lifetime of equity in the house.
If you want to enter into a rent-to-own agreement, work with a real-estate agent to make sure you aren’t paying too much. Treat it as a serious legal contract and seek legal advice.