Rent-to-own; How Does the Process Work?
Maybe you have just found the home of your dreams. It has the right layout and is located in your dream neighborhood. Since a rent-to-own company listed the property, you might not be sure how to go about the situation. This article has been created to help you understand how rent-to-own works.
What is Rent-to-own Property?
A rent-to-own property is a home that you can purchase and own through a rent-to-own agreement. This agreement involves agreeing to pay rent for a specific duration before you are given ownership. The duration can range from a few months based on the agreement.
So How Does The Process Work?
There is no one-size-fits-all alternative regarding the rent-to-won option. However, most contracts will involve the components mentioned below.
1. The Purchase Price
The rent-to-own contract will specify how the process works, and above all, how the price is decided. In some cases, the price of the property could be based on the current value, or it could be predicted. Note that if the owner is to be transferred in the next few years, then the prices will be predicted.
At times, the price of the property only becomes official after the seller, and the buyer gets to sign the contract. There some situations where the price of the property will only be decided after the lease has expired.
2. Rent Payments
Part of the contract states that you will agree to pay a certain amount of rent each month for a specified period. The rent you will be paying will be typically higher than the rent prices in that neighborhood since they are set aside for future purchases. This is something you must take note of before signing the agreement.
In the rent-to-own agreement, the owner of the house has the right to ask you to cover extra costs such as repairs, HOA fees, maintenance, and property taxes when you are still a tenant. This is a condition that you can negotiate with the seller, but you will take care of everything, including landscaping and other expenses if you agree to it. This explains why before signing the contract, you need to work alongside an attorney to explain to you everything involved.
4. Option Money
Once you have signed the contract, you are supposed to pay the seller a one-time that is non-refundable. You should make this payment as it allows you to start owning the house as you strive to complete the entire purchase price.
There are cases where the seller will choose to put this amount toward your equity in the home. Since there is no standard amount to be paid, it is always taken from the property's entire value.
5. Lease Term
It is upon you and the seller to agree on a given lease term of the agreement. If the period for the lease and you are unwilling or unable to keep paying toward owning the house, the purchase will expire immediately. Therefore, once you have decided to pay and own a house, you must remain committed.
6. The Closing Process
If you plan to own the house, you are supposed to secure financing by the end of your lease term. At that point, it is upon the seller to set the closing date so that when that time comes, you will be granted ownership of the house. Based on the terms of the agreement that you have been working with, the percentage of the rent amount set aside for the purchase will be credited to you as the buyer.
Note that the rent-to-own option is, most of the time, not regulated, unlike the typical buying process. This is because there is never a standard rent-to-own contract. The advantage of this is that you can always negotiate the terms of the contract.
If you feel this is the best way to buy and own a home, you need to contact an experienced real estate agent, as well as an attorney. They have to help you understand every term of the contract. You must only sign the contract after you have read and understood everything involved.
The rent-to-own option has its pros and cons. The seller will always come up with their terms. Yours is to take your time and make the decision when you are willing and ready to buy the house. If the lease period expires and you wish to discontinue the contract, the amount you shall have paid shall not be refunded, so you need to be careful at each stage.
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