For some people seeking a home, or selling a home, the “rent-to-own” home may be the best option. As a homeowner looking to sell, you may find your home sitting on the market month after month. As someone looking for a home, you may find yourself in a market where it makes more financial sense to rent than own. In either case, the rent-to-own home option may be your best solution.
Also called a “lease-to-own home” or “lease option home” the process works similarly to a car lease. As a renter, you pay a certain amount each month to live in the house, and at the end of a set period – generally within three years – you have the option to purchase the home.
To get started with a rent-to-own home the deposit is typically a little more expensive than a conventional rental home. Each month of rent you pay (which may be slightly above typical rent) is income for the seller, while a portion may go towards the down payment if you chose to eventually buy the home.
This is a valuable alternative for buyers who otherwise wouldn’t have the credit score, money saved, or any of the other bank requirements to acquire their own home. And for sellers, eager to relieve themselves of the burden of their old home, they earn this money whether or not the house sells once the leasing period expires. If, at the end of the contract the renter can’t or chooses not to buy the house, the seller keeps all the money.
As with any business agreement, both renters and sellers need to be very clear about the contract they draw up, as the rent-to-own arrangement has advantages and disadvantages for both parties.