how does rent to own work?

Asked by Paul, Wasilla, AK Mon Jul 4, 2011

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Debra (Debbi…, Agent, Livingston, NJ
Tue Jul 5, 2011
Paul - one of the major components in a tradtional "rent with an option to buy", is that you, as the buyer, will be paying an amount of money for the right to have that option. It is non-refundable. It can be paid either as an upfront deposit, or taken out of monthly rent.

The rent you pay will be an amount OVER and above what a normal rental will be. That overage will be, as Dan explained, credited toward your purchase IF you exercise your option, and buy the home.

I think a lot of consumers online mistakenly think all of the rent they pay is put towards the purchase. This is not true in a standard rent to own transaction.
There may be creative ways of structuring this, but that's between you, the seller and the attorneys who draw up the agreement.

If you do not.... or cannot .... buy the home at the end of the agree-upon term - (maybe you can't qualify for a mortgage a year from now due to higher interest rates, or poor credit) - the seller retains that upfront deposit or additonal rent.

The purchase price is set this uncertain market, do you really want to do that?

if there is anything questionable with your finances now.......make sure it won't be an issue down the road, or you may have paid a lot of rent for nothing.

Personally, imo, I think you're better off renting, saving your money, and then negotiating the price and terms when the time is know you can move forward with the sale...and you know what the fair market value is at that time.
Best wishes....
1 vote
Brittni Radf…, Agent, Wasilla, AK
Wed Jul 11, 2012
Hi Paul,

There is no "one" answer to this question, everything is negotiable when it comes to terms and conditions of a sale of any kind, weather it be rent to own, lease option, or a traditional sale, really it is all about getting Buyer and Seller moving in the same direction to an outcome that fits everyone's wants and needs.
0 votes
Broc Murri, Agent, Wasilla, AK
Sat Jun 2, 2012
All of the answeres are a great explanation of rent to own. Make sure at the end of the rental agreement you qualify for the purchase.
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Scott Godzyk, Agent, Manchester, NH
Tue Jul 5, 2011
Paul there are a variety of types of rent to own but the best way is for you to get prequailified for a mortgage, to know that the house you choose is within what you can get a mortgage on and you konow how long you need to get a mortgage and what you will need to save for a down payment and closing costs. Then you want the lease to be at leats that long to make sure you can complete the purchase part of the lease purchase.

You should also make sure you are getting creidt for part or most of teh rent you are paying towards your down payment and costs.
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Robert Bickel, Agent, Wasilla, AK
Tue Jul 5, 2011
Hi Paul,
Both Debbie and Dan are correct other than the fact that our homes currently are considered in a stable market with not much movement forecasted in in decreases or increases in the next year.
However interest rates are going to be the biggest factor in home affordablity in any market.
If you can afford rent now then you can afford to buy also right now.
If your credit is a problem then as Debbie says work on it so in the future you will be in position to purchase.
Alaska has many programs to get you into a great home and many of us Alaskan Realtors are capable and willing to help you reach your home ownership goal.
I would suggest you that you proceed in a purchase if you are able to right now as interest rates haveagain fallen to a very low rate dispite my prediction that would rise to 5.5% by now and 6.5% by years end.
I still believe this will play out however I may have been 6 months ahead in my prediction.
If you were curious as seller of a fine home I would suggest you calling your favorite Realtor or if you don't have one call a good one and have your questions answered in regards to your home.
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Dan Tabit, Agent, Issaquah, WA
Tue Jul 5, 2011
There are variations, but basically you and the seller have an agreement of price, time and general terms for the title of the home to change hands at a pre-determined time if you elect to complete the terms.
For example;
I will buy your home for $X00,000 dollars, pay you $Y,000 rent of which $X will be applied to my purchase as down payment. If I don't buy the house you get all of the rent.
If you complete the transaction you have some money saved up for down payment, the price is set at today’s value (hopefully it's gone up) and you've had the benefit of living in the home and knowing what you are getting.
This is a very simplistic example. You'll need more details worked out if you want to proceed. Talk to an agent who has done these or have your agreement drafted by an attorney.
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