Rent-to-own a home is also known as ‘lease with an option to purchase’. This kind of renting typically begins when you take a house on a lease period that comes with an option in the agreement to buy the house when the lease period ends. The tenant during this time has the option to buy the house for a specified amount through a lender with mortgage or other options.
But then you also have the option to buy the house anytime during the lease period and not typically when the lease period ends. If the tenant decides to buy the house, the owner will agree not to list the house on the market for sale as he has promised to sell it to the tenant. The rent agreements will first clearly explain the monthly rent payments on the half of the tenant and the second part of the agreement creates a bond with the owner to sell the house to the tenant at an agreed price, provided that all conditions of the agreement is met.
Is the ‘options fee’ same as the rental security deposit?
One should not confuse a rent and security deposit with an option fee. An option fee is usually paid at the start of the lease period. This option fee is nonrefundable, irrespective of whether the tenant decides to purchase the house or not. In certain rent-to-own home agreement, this option fee is applied towards the purchase amount of the house.
How much is the option fee?
The option fee is generally 3% -5% of the total purchase price. Anything above this amount can be negotiated between both parties. The more cash a tenant puts down as option fee, the more space he acquires to negotiate the deal during purchase.
Why is rent-to-own booming in the real estate industry?
The declining housing market and stricter lending rules are putting pressure on both a home buyer as well as the seller. Hence, the rent-to-own options are a blessing for both parties, under which the buyer can rent the house for a particular time period and then decide whether he wants to buy the house or not. It’s also an attractive option for sellers facing a low real estate market, because they can lock down a price on the house which otherwise can fall in future.
Families with more than four members greatly benefit from this option since they can move their entire family to a brand-new house without spending any extra cash. At the end of 12 months of rental payment, the entire amount can be credited to their down payment when they choose to buy the house after the lease period.
The buyer has the opportunity to carefully evaluate the neighborhood while he is still on rent and then decide whether he wants to make the property his investment in the future. Sellers on the other hand, receive rental income to cover up their mortgage and survive in the slow real estate market.