"Rent to own properties can be a great way to purchase a home without using the traditional methods of mortgages and bank loans. Unlike a standard home purchase, in a rent to own transaction the seller and buyer agree on a possible sale at some time in the future. There’s no guarantee of purchase, but the renter’s payments are usually used to reduce the overall cost of the purchase, should they chose to buy the home. There are significant benefits to buyers who use this method to purchase a home, in addition to the standard benefits of home ownership like tax deductions and financial security.
How it Works:
As a buyer, you will agree to certain terms with the seller, and sign a contract. A lease option premium will grant the buyer the right to purchase the home in the future. While these payments don’t require a purchase, they are usually not refundable. However, if the buyer does choose to purchase the home, the premium can be applied to the purchase price. The purchase price is decided upon by the buyer and seller, and is set in the contract, granting the renter the option to purchase the home at that price regardless of current market value at the time of sale. Finally, the buyer/renter makes monthly payments to the seller, of which a portion is applied to the final cost of the home, reducing the amount the buyer would have to finance.
Benefits to Buyers:
A lease purchase transaction can be appealing to a wide variety of buyers, not just those with bad credit. Coming up with a large down payment to purchase a home can be difficult, and renting to own bridges the gap between owning and renting. As a buyer, your monthly rent payments actually go toward a future investment. Additional benefits include:
Grow your equity. A portion of rent payments are actually applied to the purchase of the home, which will eventually be yours should you chose to buy. This a great way to grow your equity by funding a future investment.
Minimum out of pocket expenses. Usually, a home is purchased with 3.5% of the price down, and you have to account for closing costs as well. With a rent to own purchase, you are only responsible for the normal rental security deposit with a small option premium.
Flexible terms. Many rent to own contracts offer negotiable terms for buyers. Sellers are often open to those with bad credit, because you make monthly payments that establish your ability to purchase.
Get to know the home. These agreements allow you to learn the ins and outs of your home before purchasing. Unlike traditional agreements, you have a change to actually live in your future home before you actually own it.
Lock in the purchase price. Rent to own properties give you the ability to decide on a purchase price in advance, regardless of how the market changes.
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