Buy a Home Through Rent-to-Own Purchase Option
One of the best ways of buying property at a rate that does not get influenced by market trends is a Rent-to-Own option.
What is Rent-to-Own?
Rent-to-Own means is a situation where you agree to buy property at future date, based on a specified value in the agreement and in the meanwhile, you live in the property on a rental basis. Other terms used to refer to this form of a purchase arrangement are lease-to-own option or a rent-to-purchase option
What is part of a Rent-to-Own Agreement
The Rent-to-Own is made up of two sections. One section details the lease terms and the other section has the purchase option.
The lease section specifies features such as lease amount, the period of lease, date on which amount is to paid, and so on. In the purchase section, you can see details mentioned about the opportunity to buy the property, at a specified time in the future alongside the price.
What aspect should you know about a Rent-to-Own agreement?
In a Rent-to-Own agreement, three factors will apply. These are rent premium, option fee and rent credits.
Rent premium is an amount that you have to pay towards the property’s down payment. It is an amount that is a little more than the rent. Another thing that goes towards down payment is the option fee. However, you have to note that the option fee is not refundable to you, should you decide at the last moment that you don’t want the property. A rent credit is a portion of the rental payment that is also contributed to the down payment. This is added by the seller to the down payment every month.
Benefits of Rent-to-Own
There are many benefits in a rent-to-own situation for both the buyer and seller.
As a buyer, your gain because the changes in market value will not affect the price you pay for the property. So, if prices were to rise, you don’t have to pay more, just the same amount that was put in the agreement.
You make contributions towards down payments through rent premiums, option fees and rent credits so this reduces the full amount that you have to pay at the time of purchase. This is a real advantage for you when the time of payment comes.
Finally, if at the last moment, you choose to not buy the property, you are free to do so. There is no binding option on purchase. Though all the money paid towards down payments in such situations becomes a loss for you still, you can do away with a purchase, which you feel is not right in the last minute also.
Sellers benefit by having someone who will look after their property really well as they will be owners of the property in the future. The seller gets money not just for the home’s value but also in the form of rent which is an additional source of money, till the actual purchase happens. In case the buyer decides to not buy the property in the end, money taken through option fee, rent premiums do not have to be refunded.
A Look at the Other Side of the Coin
As someone entering into a rent-to-own agreement, you should be aware of the other side of this situation. As a buyer you will lose your rent premium and option fees, should you decide to withdraw from buying in the end. In case of the seller, should market prices suddenly rise high, they would be on the losing end as the price fixed for their property would be significantly lower.