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Rent to Own Frequently Asked Questions

What are the parts of a rent to own agreement?

1. The rental agreement which includes the terms of your lease while renting the house
2. An option agreement that shows the time period and purchase option fee
3. A sales contract that has the purchase price and terms of sale

What is an option credit?

An option credit is the portion of the total monthly rent paid that is applied to the final home purchase. For example, if a monthly rent payment is $1,200 and the option credit is $500 per month, then, over a 24 month lease, the renter will accumulate $12,000 in option credits that can be deducted off the purchase price at the closure of the lease, or used toward a downpayment, if the renter chooses to purchase the home.

What happens to the option fee and credits if the buyer doesn't purchase the home?

The option fee and any credits earned or accumulated during the lease are typically non-refundable if the buyer does not purchase the home. The fee and credits act as incentives for the buyer to complete the lease terms and purchase the house. This also protects the buyer by maintaining exclusive access to the home purchase.

Who pays home insurance and real estate tax during a rent to own?

The owner of the house is usually required to maintain full insurance and pay all property taxes and other fees, such as HOA (home owner association) dues while the house is being rented.

Does the buyer have to buy the home at the end of the lease?

Although lease option agreements may vary, the answer is usually no. The lease option should allow the buyer the option to either purchase the house at the end of the lease or leave after the lease is over.

Is there another option to build the option credit besides in the monthly rent payment?

Yes! Many rental houses need upkeep in the duration of the contracted lease, especially for long terms such as 36 months. If the renter agrees to take on parts of the needed home maintenance while renting they can add equity. When the buyer pitches in to do repairs or upgrades, the value of the property is improved. So, by acting as the seller's maintenance assistant, the buyer can ask for the value of the work performed be included as an option credit. For example, if the seller would otherwise need to pay an outside company $1,000 to make a repair, and the buyer offers to repair it for $300, it is reasonable for the buyer to ask for a $1,000 option credit, which then gives the buyer $700 in equity value.

What is an option fee?

The option fee is a payment from the renter to the seller before the renter is moved in. This fee is negotiable, but is typically 1% to 3% of the final purchase price of the house at the completion of the lease. For example, on a $100,000 purchase price, the option fee can be between $1,000 and $3,000, depending on the percentage chosen by the seller. The option fee is in place so the renter is the only one that can purchase the house from when the lease is signed to the completion of the lease. The seller may not sell the home to anyone else during the option period, and the renter can choose to either purchase the house or not, however if they choose not to purchase the house the option fee is usually forfeited to the seller.