· Elements of a rent-to-own contract
No two rent-to-own contracts are alike and every state has their own terms and conditions to be met. Usually, the potential buyer rents the property for one to three years only, and then he or she can buy the house depending on the agreement made.
· Option Money:
In a rent-to-own agreement, there is a lease-option contract, where the potential buyer has the right, albeit not obligated to purchase the property when the lease expires. The option will just expire if the potential buyer doesn’t purchase it. But you have to be careful when you see the word “lease purchase,” this simply means that the potential buyer is legally obligated to buy the property at the end of the lease. So it is important to have the contract vetted by a real estate expert or attorney before signing it.
· Purchase price:
When the contract is signed, both the seller and the buyer agree on the purchase price—usually higher than the current market value. Others also agree to determine the price when the lease expires.
The lease term is negotiable but usually ranges from one to three years, where you pay monthly rent. Most of the contracts have a percentage of each monthly rate payment that will apply to the purchase price. In some cases, the seller will charge a slightly higher rent to accommodate the rent credit the buyer receives.
The buyer should purchase a renter’s insurance policy to provide liability coverage in case somebody gets hurt on the property. Also, check on the contract’s specification regarding the maintenance of the property. You’ll want to know whether the you are responsible for maintenance while you are still renting. The seller should ultimately be responsible for the association fees, taxes, and insurance, etc. depending on the terms of the contract.
· Purchasing the property:
The potential buyer forfeits any money paid which includes option money, and the rent credit earned once the lease option expires. But if the contract says that the buyer is legally obligated and didn’t purchase the property, legal actions may be initiated. If the potential buyer decides to purchase the property, a certain percentage of the money he has paid to the seller may be deducted from the purchase price. Thus the buyer becomes the homeowner.
· Ideal Candidates for Rent to Own
A rent-to-own type of agreement is best for people who are eager to own a house but on a tight budget. This kind of agreement gives them the chance to save money for a down payment, and also get started on building some equity. They just need to be confident and be ready to make the purchase of the house when the term of the lease expires.
Here at Western Pacific Insurance, we explain every rule in layman’s term, so that we are easily understood. So if you’ve got questions with regard to the process of a rent-to-own home, please call us at (702) 932-3105 or visit our office. Get a free quote from us by clicking here.