Buying a house can help you gain financial security as you build equity, and gives you control over your property, without having to follow a landlord's instructions. If you have bad credit or can't afford a down payment, though, a rent-to-own agreement can help you build equity by paying rent, eventually providing you with the option to purchase the property. Rent-to-own isn't limited to homes, though: you can rent appliances, cars and other property with the intention of purchasing them later. Every state establishes its own rent-to-own laws, and your contract governs the specifics of your transaction.
Rent-to-own contracts are governed by contract law, and many states mandate that RTO agreements have a contract. You and the landlord are legally required to follow the terms of the contract. For example, if your contract states that you can purchase the property within six months at a predetermined price, the property owner can't later change the price or threaten to evict you if you don't make a purchase.
RTO contracts are considered rental agreements, not credit accounts, which means they're not covered by the federal Truth in Lending Act. However, most states have enacted laws requiring owners to make certain financial disclosures. In Florida, for example, the contract must list any charges not specifically contained in the rental agreement, the total amount of all payments, the price of the home or the method used for calculating the price of the home, and the time period during which you can purchase the property.
Your RTO agreement is governed by the Fair Credit Reporting Act. Your lender might report your payments and any defaults to the credit-reporting bureaus, but under federal law, you have the right to dispute any inaccurate information. If your lender intends to report negative information to the credit bureau, he must inform you within 30 days, and must ensure that the information he reports is complete and accurate, under the Fair Credit Reporting Act, according to the Federal Trade Commission.
Some states have established laws governing the cancellation of RTO contracts. In New Hampshire, according to the New Hampshire Department of Justice, if you default on a payment, you have 21 days to make the payment and reinstate the agreement. Florida law requires that RTO agreements itemize the terms under which the agreement may be canceled, according to Nolo.com. In many states, including Florida and New York, you may cancel the agreement prior to taking possession of the property.
Neither landlords nor sellers may discriminate by offering housing only to people of certain races or genders. For example, if you meet with a landlord, the landlord may not refuse to rent the property based upon your age, and an advertisement for an RTO property may not state that the owner is only interested in selling to white people or men.
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