Understanding Rent-to-Own Contracts

Home ownership has been unattainable for many people in recent years. COVID caused many homes to sell for tens of thousands of dollars above asking price. While the market has cooled down since then, interest rates are still sky high.

Some are disheartened by the current real estate situation, with 20% of those looking to buy a house thinking they will never save enough to do so. However, some are trying to rise above the situation. This has caused millennials and others looking for a place to call home to be a little creative with their home buying journey.

One solution is rent-to-own homes, which allow tenants to put monthly rent payments toward purchasing property. Celebrities such as Will Smith and Jay-Z have invested in this concept, so it’s likely not just a passing trend.

With rent-to-own, you start as a tenant and can eventually end up as a homeowner. You work toward buying the home you already live in. You’re building up part of your eventual down payment through your rent checks.

Sounds good? There are some things you should know before signing a contract.

Two Parts Involved

A rent-to-own arrangement usually has two parts: the rental lease agreement and the purchase option. The lease agreement portion stipulates that you pay a set amount of rent on a regular basis while you live in the home. It sets conditions as to what you can and cannot do to the property.

The purchase option gives you the right to buy the home before your lease runs out. The option spells out the price of the home if you decide to purchase it and how your rent payments apply toward the purchase.

However, this type of agreement is not automatic. You might need to pay an upfront fee to have it included, with a fee ranging from 1 to 5% of the total purchase price.

With a rent-to-own property, you originally move in as a renter. Depending on your agreement, though, there may be different rules involved, so be sure to familiarize yourself with the contract.

For example, some agreements may require the tenant to be in charge of managing repairs and maintenance, much like a homeowner. Also, understand the penalties of a late or missed payment because this may be grounds to terminate your contract.

Your best bet is to hire a lawyer to review the contract before signing. Make sure you understand how the whole rent-to-own process works so you don’t end up losing money.

Seek Legal Help

Rent-to-own may seem like a great idea, but make sure you understand the terms of the contract. Otherwise, you could be sued or penalized for not meeting your obligations. Review the pros and cons carefully.

Don’t move forward without contacting Fort Lauderdale real estate contracts lawyer Edward J. Jennings, P.A. We can assist you with your contract and prevent breaches. Fill out the online form or call 954-764-4330 to schedule a consultation.

Source:

bankrate.com/real-estate/how-rent-to-own-works/#ideal-candidates