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What is a Rent To Own?

By Karen Godfrey

Rent to Own, what is it and how does it work? Rent to Own also known as a Lease Option or Lease to Own, is the purchase of a home over a two or three year span of time, and is often a great way for someone with bad credit or a first time home buyer that may not have a sufficient down payment. Rent to Own properties have their pros and cons. So, you must decide what is best for you.

This is how it works: you rent a home for two to three years, and a portion of your rent goes towards the down payment on the home. Upon signing the lease agreement, there must be an agreed upon price at the time of the lease contract. The contract is binding to that price, and both parties are contracted to that price whether the home appreciates or depreciates in value at the time the home is sold.

The renter will be responsible for paying a lease option fee, which is usually a few thousand dollars when signing the lease. At the end of the lease, when it is time to purchase the home, the fee is used towards the down payment on the home. Rent is usually a couple of hundred dollars more than normal with a Rent to Own property. This is referred to as the rent premium, which also goes towards the down payment of the home.

Rent to Own contracts can be somewhat risky for a couple of different reasons. In most cases even though they do not yet own the home the renters are responsible for repairs, even when they are still under the renting portion of the contract. If the owner of the home fails to pay the mortgage while it is being rented by the perspective buyer/renter, they will have to move, and will lose all of the money they have put towards the home.

It should also be noted that in the event you choose not to buy they home at the end of the contract, you will also lose they money that you paid towards the down payment.

There is a lot to consider before entering into a rent to own contract. Make sure that you are getting into a contract that will be financially beneficial to both parties involved.

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