Do you want to buy a home, but you can’t get enough money together for the downpayment? Is your landlord willing to sign a rent to own agreement, but you’re not sure if it’s the right thing for you to do?
According to the National Association of Realtors, home sales in the US last year were more than 6.7 million units. There are many other people who have figured out how to afford a home.
If you’re thinking about signing an agreement to buy the home you are currently renting, do your research. Here’s a guide to understanding rent to own contracts.
What Is a Rent to Own Contract?
A rent to own contract is a written agreement you make with your landlord. Usually, there are two parts to the agreement, a standard lease and an option to buy the home after a certain period.
Are Rent to Own Contracts Legally Binding?
There are two types of agreements where you may purchase the home you are renting. They are:
- lease-option contracts and
- lease-purchase contracts.
Both of them are legally binding contracts if the terms are clear. The lease-option agreement allows you to choose to buy at a specific time, while the lease-purchase contract is a commitment to buy.
A rent to own contract is binding, and both parties are responsible for following through on the agreement.
How Do Rent to Own Contracts Work?
The terms of the contract define the conditions. The amount of rent you pay monthly might include an additional amount that will be part of your down payment when you buy the home. Rent to own houses is a great way to save for a downpayment over time.
Establish the future purchase price in advance, and agree on other terms. Rent to own is binding, so be sure you understand what you agree to before signing.
When you buy a house, you usually arrange for an inspection, and any significant repairs identified can affect the purchase price. An appraisal will ensure that you don’t agree to pay too much for the house.
During the Lease
While you are still leasing the home, you must follow the terms of your lease. If you’re not allowed to have pets, you can’t go out and get a dog just because you have a rent to own contract.
If you violate your lease, your landlord can evict you, and you might forfeit all of the rent to own payments you made. Be sure to ask questions before you sign the agreement so you don’t end up in this situation.
Some contracts require the renter to maintain the home. They must pay for repairs as if they already owned the house. If you violate the lease, the landlord probably won’t reimburse you for these repairs unless the rent to own contract says they have to.
Make Your Decision With Confidence
Now that you understand how rent to own contracts work, you can make an informed decision that best suits your situation. You can be confident in signing the agreement when you’ve gone over the terms and you’re happy with your obligations.
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