Home ownership is indeed a major accomplishment that most individuals find hard to achieve. This is primarily due to the less capital and limited resources to finance a mortgage, down payments, and other costs associated. Then, there comes a worthy alternative to evade major financial hassles; the rent-to-own agreement.
In a rent-to-own concept, the seller strikes a lease agreement with the buyer, alongside the option to buy the property before the expiration of the lease. It is beneficial for both buyer and seller. Stay adhered to the article as we dissect the entire concept of rent-to-own in the following:
Types Of Agreements In Rent-To-Own
Rent-to-own typically comes with two types of agreements:
Lease-Purchase Agreement: Under this agreement, you are obligated to purchase the property upon lease expiry. Therefore, it is prudent to have your savings, financials, resources, and reserves checked before signing a lease-purchase agreement.
Lease-Option Agreement: As it is obvious from its name, this agreement gives you an “option” to purchase the property when the lease expires. This concept is ideal for buyers who are cautious about their financials since the agreement doesn’t legally compel you to buy the house at the end of the lease.
How Does The Process Work?
We’ve explained below the major points of rent-to-own agreement to help you decide whether rent-to-own is worth going for:
● Increased Rental Payment
Just as a traditional rental agreement, you’re required to make monthly rental payments. However, this agreed-upon rent has an additional percentage of the actual rent that accounts for your future payment to own the property.
● Upfront Fees
A lease-option agreement requires you to pay an “upfront fee” to give you an option to buy the home in the future. It is typically non-refundable, i.e., you can’t claim it in case you back out of purchasing the property. There is always room for negotiation in upfront fees, but it doesn’t usually exceed 5% of the purchase price.
● Determining The Purchase Price
The rent-to-own agreement, in some cases, doesn’t settle the purchase price initially and leaves it to be decided upon lease expiry. Whereas, in other cases, the price is decided right in the contract. This predetermined price is set somewhat higher than the existing market value of the home, owing to the (predicted) inflation over time.
● Maintenance Cost
In a standard rental agreement, the owner is responsible for basic maintenance and repair costs, but this isn’t the case for a rent-to-own agreement. You may be required to pay for not only the home maintenance, but also the taxes, insurance, and other miscellaneous costs associated with the property. We suggest taking legal assistance from a professional to steer clear of any future misunderstandings in this regard.
● At The End Of The Agreement
Upon lease expiry (or agreed-upon term), you’re allowed to lend a mortgage and purchase the property right away. The upfront fees and rent credit (specified for your purchase) would be added to the overall purchase price.
On the contrary, you may walk away just like a typical renter when the lease period runs out, in case you are unable to finance the purchase. However, the additional rental payments and upfront fees would be rightfully confiscated. Regan McGee, Toronto-based entrepreneur and Nobul CEO has made it convenient for you to get all these services.
Conclusion
The rent-to-own agreement allows sellers to save money on their apartments and helps them earn a “rental income”. Likewise, the prospective buyers, who want a long-term purchasing plan to build the capital for a mortgage over time, can readily opt for a lease-option agreement. Yet, both buyers and sellers must employ a professional legal assistant to walk them through the contract and establish mutually agreed terms and conditions.
