Rent to own agreement also called lease options or lease to own contracts are traditional forms of lease agreements that provide the tenant with an opportunity to buy rental property sometimes at the beginning of the tenancy. This type of arrangement has various financial benefits and others to both the tenant and the landlord. The rent to own agreement comprises of two agreements: an option to purchase and a standard agreement. These agreements can be combined in one document or two separate documents.
Once the tenant is given a certain period to purchase the house and the time expires before he buys the home, but still, wants the home, he should negotiate with the seller for an extension on the rent to own contract. Most often, if you have been a good tenant with a genuine intent to buy the house, the home seller will continue working with you. But if the period to purchase the home expires and no longer want to buy the house or continue staying in it, you can move out of the house without buying it and without any penalty.
In case you decide not to purchase the home, the duration of time you spent in that home will be treated like rental since you did not exercise your option to buy the home. This is the fundamental distinction you should be clear on with rent to own homes. There are two parts to the agreement:
- A Lease or Rental Agreement: In this agreement, the title to the home remains with the homeowner until the tenant exercises his option and buys the property. This means that the beginning point of this kind of agreement is tenancy but not a transaction to purchase the home. You pay a monthly rent on the home for a specified term. The rent to own agreement is therefore similar to a common lease agreement between a tenant and a landlord which includes terms such as the amount of rent to be paid, the lease duration, repair and maintenance responsibilities of both the tenant and the landlord.
- The option to purchase
This arrangement gives you the option to buy the rental home for an agreed price within a specified period. If you fail to buy the home, you are not entitled to any refund of rent or option fee. Since a lot is at stake for both the tenant and landlord, it is important that the option to buy covers all the significant terms and conditions such as the option period duration and the buying price of the home.
A rent-to-own arrangement can be a great way for the tenant who desires to own a house and enjoy the benefits of home ownership a home but due to lack of capital or bad credit does not qualify for mortgage financing. Rent to own allows a tenant to invest as well build equity in a home with an open option of walking away if he no longer wishes to buy the house. Although there may be some financial consequences, you are not legally obligated to purchase the home under the rent to own arrangement. If you decide to give up the option, it will not lead to any foreclosure proceedings or have any effect on your credit status.