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How Do Rent-To-Own Homes Work?

rent or own... why not rent to own a house?

The rent-to-own lease option is one of the easiest ways to eventually own the home that you are already renting. Literally, this means that your rent helps you to lay a foundation for your future, instead of it going to waste. However, just like with other major financial decisions, there are benefits and drawbacks that are associated with rent-to-own deals. Here is what you need to know about this process.

How Rent-To-Own Works

With a rent-to-own home, you can make rent payments every month, and have a portion of that money go towards buying that home. As with any other type of important transactions, the process will begin with a contract. However, with this type of contract, you will start with two agreements, a rental agreement and an option to buy agreement.

Rental Agreement

This agreement will focus on the standard lease, where it will define your rent and the terms of payment. In many occasions, the term will range anywhere from 1-3 years. There will be some standard terms and conditions that you are required to meet. For example, you might not be allowed to smoke in the house or keep pets, etc. You would have to obey occupancy limitations and general conduct prerequisites.

Once you violated these conditions, you could be kicked out, just like an ordinary tenant. Additionally, if you break the rules of the lease, you will also risk losing any funds that you had paid toward the home to be able to buy it.

There is one thing that makes this lease agreement different. As a tenant, all the responsibility of house maintenance and general upkeep costs will be on your shoulders. The reasoning behind this is that you will be motivated to keep the home maintained, knowing that it will belong to you eventually. However, the landlord may also chip in for certain repairs.

Lease Agreement

The lease alternative offers you first dibs to buy the house that you are renting, which is usually valid for the period that is equivalent to the lease period, which is set in your rental agreement. This means that if the rental agreement says that the lease term is 3 years, then the lease alternative will offer you three years to complete paying for the house. Once you have the agreement, you are assuranced that no one can swoop in and snatch your property.

You will be required to pay an option fee to maintain first dibs on the property. In most cases, the amount will vary from 2% to 7.5% of the home’s buying price. The company selling you the house will credit the option fee to the home purchase at the end of the term. Note that you risk losing this fee if you opt not to purchase the house.

Ensure that you are signing a lease option and not a lease purchase. While these terms can be used interchangeably, the lease option offers you the opportunity to purchase the home, if you wanted to. On the other hand, a lease purchase compels you to purchase a house, and this implies that the seller can sue you if you decide not to buy.

How Much Will A Rent-To-Own Cost?

In a rent-to-own arrangement, a certain portion of your rent will go towards the buying price of the house. For this reason, you need to negotiate this amount with your landlord. However, when negotiating for this deal, keep in mind that you will be forced to pay more to rent a home than those who rent in a normal way.

For example, a home that would be leased at $850 a month may go for $1,000. The extra $150 will be saved as a credit towards the purchase of your home. This means that if you want a higher credit, your rent must increase consequently. Additionally, bear in mind that your lease might say that if you pay your rent late, you will risk losing the credit for that specific month.


Although you will begin just renting a rent-to-own home, it is important that you consider doing some research before signing papers that will put money toward the purchase of a property. However, if you can afford to purchase a property using the traditional approach, through financing, go ahead, since it’s the best and much less risky alternative.

For individuals who are not financially stable, or those who want to keep their alternatives open, a rent-to-own home is the best way to stay in your dream house and pay for it later.