A rent to own agreement is an agreement in sales where the parties agree that one party rents and gets the option to purchase the property sometime in the future. This is different from a direct purchase where two parties, the buyer and seller, agree to exchange the property and the payment more or less at the same time. Rent to own agreements are among the most common agreements in real estate transactions.

Option to Buy

In a rent to own agreement, the sale is not absolute. The potential buyer must pay the seller a non-refundable lease option fee called option consideration which gives him the option to buy the property in the future. In most contracts, this gives him the option, but not the obligation to buy the property. This payment is on top of the rental payments that he makes to the seller.

In some agreements, a portion of the payments may be used to reduce the amount needed to buy the property in the future. However, if he chooses not to buy the property, he forfeits any funds paid until that point, including the option money and any rent credits accumulated until that period. If the potential buyer decides not to go forward and buy the property, the option simply expires.

Who can enter into rent to own agreements?

This type of agreement is ideal for buyers who expect to be in a more stable financial position in the near future. You may be in a position right now where you cannot make a huge purchase but you can make regular monthly payments or rentals. If you have bad credit, you can also purchase property using this process, since buyers who have bad credit find it hard to qualify for home loans the traditional way. A rent to own agreement can give them enough time to rebuild their credit scores so that once it is finally time to buy the property, they are in a better credit position to be granted a home loan.

Benefits of a Rent to Own Agreement

These agreements are beneficial for those who want to test drive a property especially a home before they buy. This gives them the chance to learn about issues associated with the property such as problems with the house, neighbors and the like. Homeowners who prefer to limit their moves from one place to another and are looking to permanently settle down in one place can enter into rent to own agreements so they have the option to permanently live in one property once the right time comes.