Rental Properties

There really isn’t a one-size-fits-all option when it comes to the rent-to-own process. However, most rent-to-own transactions involve these components:

Purchase price. The rent-to-own agreement will specify how and when the purchase price is decided. The price could be based on the home’s current value—or a predicted one. In some cases, the price becomes official when the buyer and seller sign the contract. In other situations, the purchase price won’t be decided until the lease expires.

Rent payments. As part of the contract, you’ll agree to pay a certain rent amount each month. These payments are typically higher than rent prices in the area because a percentage of each payment is set aside as a credit for your future purchase of the home.

Maintenance. In a rent-to-own agreement, the seller may ask you to cover costs such as repairs, maintenance, HOA fees and property taxes while you’re renting. You could be on the hook for everything from landscaping to a broken air-conditioning unit.

Option money. You’re required to pay the seller a onetime, nonrefundable fee. This gives you the opportunity to buy and sell the house, and in some cases, the seller will agree to put this amount toward the buyer’s equity in the home.

Lease term. You and the seller will agree to a specific lease term in the contract. If the lease ends and you either decide not to move forward with the purchase or you’re unable to qualify for financing, the option to purchase will expire.

Closing process. You’ll need to secure financing at the end of the lease term if you plan to purchase the house. At that point, the lender will set a closing date where you’ll be given ownership of the property as the buyer. Depending on the terms of the agreement, the percentage of rent money set aside for your purchase and/or option money will be credited to you.

Because the rent to own process is less regulated than a typical buying or rental process, there’s no standard rent-to-own contract. The terms are completely negotiable. If you’re entering into a rent-to-own process, you need to talk to a real estate agent and an attorney on the front end to make sure you understand—and are OK with the terms of your unique contract.