Lease Option or Rent to Own
lease option and Rent to Own is the same. Rent to own is sometimes referred to as "lease with option to purchase," "rent to buy" or "lease/purchase." Rent to own typically begins with a lease period that concludes with an option to purchase the home at the end of the lease. The tenant then has the option to purchase the home for a specified amount by securing a loan through a mortgage lender or other source.
What Is Rent To Own?
Rent to own is when you lease a home but have the option to purchase it at any time during your lease period or at the conclusion of the lease. During that time the owner agrees that she will not market the home for sale because she has, in essence, promised to sell it to you. The first part of the rent to own agreement spells out what your monthly rent payment will be, and the second part binds the seller to sell to you at an agreed price, provided you meet the conditions of the agreement.
What Is An Option Fee?
Not to be confused with a rental security deposit, an option fee is paid at the beginning of the lease period. It is generally not refundable, whether or not you decide to purchase the property. In the case of some rent to own agreements, the option fee may be applied toward the purchase price of the home.
How Much Will My Option Fee Be?
Three to 5 percent of the agreed-upon purchase price is a customary option fee. Anything above or below that can be negotiated between the parties. The more you have to put down, the more attractive your offer will be to the seller. In addition, the more you put down as an option fee, the less you'll need to have financed somewhere else as the terms of your lease are about to expire.
What Is Monthly Rental Credit?
Most rent to own agreements contain a provision that puts a portion of the monthly rent payment aside as a credit toward the eventual purchase of the home. The amount varies by situation, but is sometimes as high as 50 percent of the rental payment. The obvious advantage to the tenant is that he begins building equity as he rents.
What About Less Than Perfect Credit?
Rent to own programs are designed with two people in mind: the hopeful home buyer with less than perfect credit and the seller who is having a difficult time selling his home. Qualifying for a program like this is more about your ability to make the monthly payments. The period of the lease gives you time to make repairs to your credit.
What If My Credit Isn't Good Enough When The Lease Expires?
Before entering into any kind of contract you should speak with a loan officer, tell him your situation and allow him to give you a realistic view of where you will be in three to five years. Join a reputable credit repair program to get your finances in order. Finally, be responsible for your credit during your rent to own term. Pay off old debt and don't add any new.