(DailyChive.com) – Are you an aspiring homeowner but do not qualify to get a mortgage? Entering into a rent-to-own agreement might be the ideal option for you. A rent-to-buy agreement entails agreeing with a property owner to rent a property and then purchase it before the lease period expires.
It is instrumental that homebuyers entering a rent-to-own agreement know what it entails and its components to protect their interest. This article explains in detail a rent-to-own agreement, how it works and how it makes home ownership attainable.
What Does a Rent-To-Own Agreement Contain?
Homeownership is procedural. The property owners retain the home’s title until the tenant exercises the option to buy the property. This implies that the landlord and tenant enter into a lease agreement with certain terms such as the duration of the lease, rent to be paid, repair and maintenance responsibilities, and home appraisal.
The tenant is supposed to exercise his option to buy the property after the lease expires. The option-to-buy agreement states the tenant’s intention to buy the property within a set time frame for a fixed rate. The tenant agrees with the landlord on the payment terms, either upfront or monthly.
Process Of Buying a Rent-To-Own Property
A rent-to-own agreement is a legally binding document. For this, the landlord and the tenant should agree on all contract terms to avoid conflicts in the homeownership process. Tenants should confirm whether they are legally obliged to buy the house or have the option to do so after their lease period expires. Owning a rent-to-own home follows the following steps:
- Determining the purchase price: The property owner and the tenant agree on the home’s purchase price. The purchase price is usually higher than the current market value. Landlords and tenants can agree on the home purchase price while signing the contract or when the lease expires. Agreeing on the purchase price upfront in a highly volatile housing market is highly advisable.
- Applying rent to principal amount: In this step, tenants should advocate that a portion of the rent they pay during the lease period counts toward the eventual purchase price of the property. They should, however, agree to pay a slightly higher rent to make up for the rent credit they receive.
- Home maintenance: Tenants in home-to-own agreements might meet maintenance costs depending on the contract terms. Normally, property owners meet these costs as the property is under their name until the purchase is finalized. Tenants should seek clarification with their attorney on their contribution to maintaining the property to comply with the agreement.
- Buying the property: This step depends on the rent-to-own agreement you signed with your landlord. If you signed a lease-purchase contract, you are legally mandated to purchase the property after the lease expires. This can be problematic if you lack adequate funds to purchase the property or fail to secure a mortgage. Homebuyers under this agreement are advised to plan the home purchase funds in advance to avoid the controversies that might occur when the lease expires and they have no funds to purchase the property as agreed.
Home buyers under the lease-option agreement can buy the house once their lease expires or move out if they have not secured enough money to purchase the property. This option is advantageous as it is flexible and eliminates the litigation risk associated with lease-purchase agreements.
Owning a home via a rent-to-own agreement is usually a win-win for the property owners and tenants if they handle the process appropriately. It is advisable for homebuyers taking this option to seek a competent lawyer’s legal counsel to guide them on the best terms of the contract.
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