When it comes to homes, you generally have the option to rent or to buy. But what if there were an option that blended the two, where you could rent the home that you hope to one day eventually own? A rent-to-own agreement, or lease option, is an alternative way to purchase a home that might work for you. Learn about renting-to-own below to see if it might be a step in the right direction toward home ownership for you.
What is Renting to Own?
A rent-to-own or lease option agreement is a contract that states a lessee will agree to rent a home for a set period of time. Then, after living there as a renter and paying rent to the owner of the home, the occupant has an option to purchase the home when or before the lease expires.
What Costs are Associated with Renting to Own?
A rent-to-own agreement is very different from purchasing or renting a home outright. With this type of contract, the renter pays a one-time, nonrefundable fee called an option consideration. This fee secures the renter the ability to buy the house in the future after they have rented it for a period of time. The cost of the option consideration is typically around 3 percent of the home’s purchase price. Aside from this cost, the lessee will have to pay rent to the landlord to live in the home, and if the lessee chooses to purchase the home, the regular mortgage costs associated with a home purchase will apply.
Can Option Considerations Be Used to Purchase the Home?
In some cases, if it is stipulated in the contract, some of the money you pay toward an option consideration can be applied at closing as a credit toward the purchase price of the home, or as part of the down payment.
Who Handles Maintenance?
Since a rent-to-own situation straddles the line between renting and owning a home, sometimes the question of who takes care of home maintenance can get a little blurred. The rent-to-own contract should explicitly state which part is responsible for home maintenance and repairs.
Should I Rent-to-Own?
While a rent-to-own agreement is a nontraditional way to become a homeowner, it doesn’t mean it is a bad way to do it. In fact, it could be a great opportunity for those who may not qualify for a traditional mortgage due to credit conditions or debt or who might not yet be ready to own a home. The key to a successful rent-to-own agreement is a clear contract that spells out the details of the arrangement. Consider hiring a real estate attorney to make sure you are treated fairly.
The NC Housing Finance Agency offers many educational resources for North Carolina citizens who want to become educated home buyers. Check out www.nchfa.com/home-buyers/resources-for-buyers to learn more.