FAQs about Renting to Own a Home

Buying a home is a great experience. Finding a home to rent can be just as exciting. But what if you have the option to rent to own a home? Do you know what that entails? If you have been offered a rent to own deal on a house, here are some common questions and their answers to help you know what to expect.

Why should I choose the rent to own option?
The rent to own option, if it is available to you, is a great way to buy a home if you have bad credit and no down payment saved up for a home. In fact, renting to own is similar to renting a home because you pay a monthly rent payment to the bank or owner of the home. The big difference is that your monthly rent serves two purposes – it is the rent for staying in the home and a portion of the rent is applied to a down payment or toward the purchase price of the home. These are called Option Credits.

Once the lease period is over, the renter can obtain financing to purchase the home and apply these Option Credits either to the down payment or to the overall price of the home. For example, if you paid $10,000 in rent each year for three years and your contract said that five percent of your rent payment would be considered Option Credits, you would have $1,500 at the end of those three years which you could use as part of a down payment or to apply towards the price of the home.

What is the Option Fee?
The Option Fee is kind of like a down payment but cheaper. When you move in to the home you are going to rent to own, the seller may ask for an Option Fee which is between one and three percent of the total purchase price of the home. This gives the buyer the exclusive right to decide if they want to purchase the home at the end of the agreed upon terms.

Do I have to pay property tax during the rent to own process?
Not usually. When you rent to own, the seller is typically responsible for related fees, such as property tax, homeowners insurance and even Home Owner Association fees if they are applicable. However, the seller could include in the contract that the renter will be responsible for these fees. Be sure to read all of the fine print so you know what fees and charges you will need to pay.

Do I have to buy the home when the lease is over?
The answer to this question depends on the contract that you sign. Generally, the renter is not required to purchase the home at the end of the lease. However, there is a chance that your particular contract is different. The seller may offer some options to you if you agree to buy the home once the lease is up. Again, know what you are signing before you agree to anything.

Do I lose my money if I don’t buy the home?
Typically, the Option Fee and the Option Credits are forfeited by the buyer if they choose not to buy the home at the end of the lease agreement. These are incentives to help the buyer make the purchase of the home at the end of the lease agreement. These fees also give the buyer exclusive rights to purchasing the home. As a result, these monies are non-refundable regardless of the buyer’s decision at the end of the lease.

Who typically chooses to rent to own?
There is a wide variety of people who choose to rent to own rather than purchase a home or continue to rent traditionally. One of the largest groups of people who choose to rent to own are those families who want to save up a down payment to purchase a home and continue to build their credit history so they can get a better interest rate when they actually decide to buy a home. Sometimes, families choose the rent to own option because they want to see if they like the area, its schools and other features before they make a commitment to purchase a home. Renting to own is also a big step between actual renting and owning a home. Many people who no longer want to rent the traditional way move towards owning a home by doing a rent to home agreement.

How many people actually purchase the home once the rent to own agreement is over?
It’s not easy to find accurate numbers for this figure, but many experts agree that this figure is below 10 percent. There are several reasons for this. For one thing, most tenants overestimate their ability to improve their credit score by the time the agreement is over. Also, it is difficult to save up for a down payment while paying rent, which is another obstacle standing between rent to own tenants and owning a home. Most tenants also do not seek professional financial advice during their stay in the home which can prevent them from achieving their financial goals of owning a home.

How can tenants improve their chances of being able to purchase the home at the end of their lease?
The best way to improve your chances of purchasing the home once the lease agreement is over is to avoid doing a rent to own transaction until you are close to having a credit score that is good enough to buy a home with a decent interest rate. If you are basing your decision on a possible raise in income or other uncertainty, you could be sabotaging your finances. Be realistic about your financial goals if you want to have a good chance of buying the home once your lease is over.

Renting to own can be a great way to move into home ownership gradually as you build up your finances. But it is always best to consult with a professional financial advisor to see which options are best for your particular situation.

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Dumbledore profile image

Dumbledore 4 years ago from Somewhere in Ohio

Very informative hub but I have one question about the option fee, is the entire fee required up-front? If it is then many people would be in the same boat when trying to rent to own as they are in when trying to buy outright.

Chad A Hagy profile image

Chad A Hagy 4 years ago from California Author

It depends on the person who owns the home. Sometimes they may require an Option Fee. Other times they may not. Either way, it is much cheaper than a down payment. Most lenders want no less than 20 percent down these days and at the very least, 10 percent down. Option Fees are typically between 1 and 3 percent, which is a fraction of the cost of a down payment. And the owner of the home may be willing to work out a deal with the renter about the Option Fee as well.

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