For those who do not have enough money or the credit to buy a house through the traditional means, the rent-to-own process can provide a way to secure a home. This process involves living in a house on a rental basis for a certain amount of time, then eventually purchasing it from the owner.
The process of a rent-to-own home agreement starts with a buyer paying the seller of a piece of property a certain amount of option money. This money is used to secure the home and prevent the owner of the property from selling it to someone else. The buyer and seller then agree on a lease agreement that specifies the amount of rent to be paid each month as well as the length of the term. The buyer then moves into the property and pays rent for the amount of time specified in the contract. At the end of that term, the buyer then purchases the house from the seller.
With this type of agreement, part of the money that you pay in rent goes toward the purchase price of the property. The owner applies a certain percentage of each payment to the total amount of money that is owed to purchase the house. By comparison, when you just rent a piece of property, you never get any of that money back. This allows buyers to get some use out of the rent money that they pay each month.
With a rent-to-own agreement, the purchase price of the property is agreed on at the beginning of the contract. This allows the buyer to know what the exactly of the property will be in the future. The buyer is not obligated to buy the property at the end of the lease term and could walk away from the deal. If they do decide to move forward with the purchase, they simply have to secure financing for the specified amount.
This type of transaction carries some risks for the buyer of a property. One of the common problems with this type of arrangement is deciding who takes care of maintenance issues. The seller of the property sometimes expects the tenant to make repairs because they are working toward purchasing the property. The tenant expects the seller to make repairs because they are essentially the landlord. Another problem that a buyer could face is the seller could sell the property to someone else. In some cases, sellers stop making mortgage payments on the property and the house goes into foreclosure.