Rent-to-own vs lease

Rent-to-own vs lease

A rent-to-own home is not as simple as renting an apartment or a house as it takes more of a commitment. After a period of time called the "lease period" you will get the choice of purchasing the home you've been renting. You should spend time reducing debts, saving money, and building credit so you are better prepared to take on the responsibility of owning a home and qualify for a loan.
Here are some of the key points to examine when considering how to get started with a rent-to-own home.

Rent

In a rent-to-own agreement rent is a little higher than normal rent on an apartment or a home of similar value. The reason for this is due to rent premiums. The rent premium is the portion of your rent which is applied towards equity in the home. The accumulated rent premiums contribute to your down payment once you're ready to buy.

Maintenance

Maintenance is an important aspect of a rent-to-own lease that you’ll need to consider due to the increased costs of having the responsibly of upkeep on the home. Fortunately, maintenance is a fully negotiable aspect of a rent-to-own lease contract.

The Option Fee

The option fee is paid at the beginning of the lease period and is used much like an advanced down payment on the home. This fee is usually around 5 percent of the purchase price of the home.

Finer points of a rent-to-own lease agreement

There are several finer points of a rent-to-own agreement you should know about before searching for a rent-to-own home.

• Your down payment can be mitigated if you negotiate the contract terms. The option fee and rent premium can both be applied towards a down payment on the home after the lease period.
• The purchase price is also something that can be negotiated. You'll want to lock in the purchase price at the time you sign the lease. The option fee is typically paid to lock in that price and it helps reduce your down payment.
• Rent and rent premiums are just like paying rent on an apartment with a slight difference. The rent premium portion is applied to down payments. Rent is money paid to the seller to make the mortgage payment and as a safeguard against a leasee that may not be able to purchase the home when the lease period ends.

Now that you've learned that a rent-to-own home is a viable option for those with poor credit. Take a look at the rent-to-own real estate listings on our site.