Rent to Own - Yes or No?

The facts About Rent To Ownhand shake

Buying a home is getting harder and harder since the banks are getting more careful considering to whom they lend money. They want to see a good credit score and a sizable down payment.

Saving for a down payment is sometimes challenging even in the best of situations. If you want to get into home ownership but have factors that may hinder your ability to be approved for a mortgage rent-to-own housing might be right for you.

Rent-to-own housing is an alternative way to get into home ownership. Also called a lease-to-own house, the process works similarly to a car lease: Renters pay a certain amount each month to live in the house, and at the end of a set period -- generally within three years -- they have the option to buy the house. Each month of rent they pay is income for the seller, while a portion of it goes toward a down payment to eventually buy the home.

Here is some important information to be aware of when considering a rent-to-own option for purchasing a house:

Sale Price

Before entering into an agreement, sellers have to decide the sale price and rent they'll charge for the house. Both amounts are subject to negotiation, just as a regular sale would be. But sellers and buyers need to remember that once they sign an agreement, the sale price of the house is locked in until the end of their rental term, between one and three years. Even if other housing prices rise or fall during that time, the original agreed-upon price is final.

Option Fee

Renters also have to pay an option fee and then a rent premium. The option fee is a set amount that the renter pays the seller. If, at the end of the lease period, the renter buys the house, the option fee becomes part of the down payment. If the renter doesn't buy the house, the option fee becomes income for the seller. Rent premiums are an amount slightly above the typical rent, with a portion of that money going toward a down payment.


Here's a typical example: The house is worth $200,000, and typical rent would be $1,000 a month. Someone who's renting to own might pay $1,200 a month in rent and then receive a $200 rent credit each month. Add the option fee, in this case $5,000. On a three-year lease, the renter would earn $7,200 in rent credits. Adding the earned rental credits to the option fee, the renter has accumulated $12,200 for a down payment.

This is a valuable alternative for buyers who otherwise wouldn't have the credit score or money saved to acquire their own home. And the sellers, eager to relieve themselves of the burden of the old home, earn this money whether or not the house sells once the leasing period expires. If, at the end of the contract the renter can't or chooses not to buy the house, the seller keeps all the money.

Before you make any big decisions about home buying, it is important to know exactly what you're getting into and what your options are. Always get a real estate professional on your side before signing the dotted line.

Wes Ayranto

Wes Ayranto

Sales Representative
CENTURY 21 B.J. Roth Realty Ltd., Brokerage*
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