Renting to own is becoming increasingly popular in the real estate industry, especially for those who are unable to get a traditional mortgage. Rent to own contracts offer an opportunity for renters to eventually own the property they are living in. In this article, we will outline the basic rent to own contract for those who are considering this option.
What is a rent to own contract?
A rent to own contract, also known as a lease-purchase contract, is an agreement between a landlord/seller and a tenant/buyer where the tenant has the option to purchase the property at the end of the lease period. The contract typically lasts between 1-3 years, allowing the tenant time to build up their credit or save for a down payment. During this time, the tenant pays rent and a percentage of that payment goes towards the eventual purchase of the property.
Basic terms of a rent to own contract
The rent to own contract will include the following basic terms:
1. Purchase price: This is the agreed-upon price for the property at the end of the lease-purchase contract.
2. Option fee: The option fee is a non-refundable fee paid at the beginning of the lease-purchase contract. It is typically 2-5% of the purchase price and gives the tenant/buyer the option to purchase the property at the end of the lease period.
3. Rent amount: The rent amount is the monthly rent paid by the tenant/buyer. A portion of the rent goes towards the eventual purchase of the property.
4. Length of the agreement: The length of the lease-purchase agreement is typically between 1-3 years.
5. Maintenance responsibilities: The contract should specify who is responsible for the maintenance of the property. This could include lawn care, repairs, and other maintenance tasks.
6. Financing: The contract should outline the financing options available to the tenant/buyer at the end of the lease period. This could include traditional financing or owner financing.
Benefits of a rent to own contract
A rent to own contract has several benefits for both the landlord/seller and the tenant/buyer. For the landlord/seller, a rent to own contract allows them to sell the property for a higher price than they could get with a traditional rental. For the tenant/buyer, the rent to own contract provides an opportunity to own a property they may not have been able to afford otherwise.
Conclusion
A rent to own contract can be a great option for those who are unable to get traditional financing for a home purchase. It is important to carefully review and understand all of the terms of the contract before signing. With a basic understanding of the contract terms outlined in this article, renters can make an informed decision about whether a rent to own contract is right for them.
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