1. What is a rent-to-own option?
It means that you are renting the property with the option to purchase it at a future date. The future buying price of the property is agreed upon at the moment of signing the lease or rent contract. Usually, the buyer is asked to pay an upfront amount to purchase this option. The amount usually varies, but is often five percent of the agreed sales price. In some agreements, the lump sum payment is applied towards the down payment of the house purchase. Such options are common in slow real estate markets.
2. What risks does the option hold to the buyer?
Not everybody who enters in such a contract ends up buying the home. Most of those who do not buy the house at the end are unable to qualify for a mortgage even after the lease period ends. Sometimes it is because their credit is still poor; other times they cannot afford the down payment while some lack documented income. If this happens, you will lose the lump sum you paid at the beginning of the lease as well as the option money you would pay every month.
3. How does it benefit the buyer?
It can attract various advantages. For instance, the buyer gets to own his or her dream house even when they cannot qualify for a home loan. If the market gets better and the home’s value increases, you will still buy it at the agreed price. That means that fluctuations do not affect you in any way. Also, you can buy the house at the end of the lease period and sell it at a much higher price.
4. How does it benefit the seller?
l Most will sell the house at a higher price than they would have sold during a typical transaction.
l They can sell a house even in a slow market
l They get some upfront cash, which they keep if the tenant does not exercise the buying option
