6 Things to Know Before You Sign a Rent-to-Own Lease Option Contract
Rent-to-own, also known as a lease option, is a contract that
allows renters to lease a property, and at the end of the lease,
usually one to three years, have the option to purchase the home at
a predetermined price.
Ideal candidates for a rent-to-own option are potential home buyers
who dream of ownership but are also concerned they haven’t saved up
enough cash for a down payment, or have a low credit rating.
As a renter, you must be cautious before you sign a rent-to-own
contract. There are many stipulations within a contract, so make
sure you understand the lease options.
Here are six things to know before you lease a property with the
option to buy.
1. Determine a fair sales price. Under a lease-option contract,
you’re the only person who has the option to buy the property
during the stated period.
Although you can usually buy the home at any point during the term
of the contract, the sales price is locked in.
You may have locked in to a great deal if the home goes up in value
during the lease term. On the other hand, you could end up paying
more for the home if it depreciates and a set price was locked in
for a higher amount than what the home is worth when your
lease-option is up.
2. Complete a home inspection and document any necessary repairs.
As with any home purchase, the condition of the home should be
reflected in the price. Take photos to document the condition.
3. Verify whether there are any liens against the property that
will affect your home purchase. You don’t want any argument over
who owns title to the home.
4. Spell out the exit clause. Make sure the contract specifies
exactly what happens if you don’t exercise your option to buy the
home at the end of the lease.
5. Ensure all payments on the property are made, and the insurance responsibilities
are clearly spelled out.
6. Consult a professional. As always when purchasing real estate,
it’s important to hire an expert to help you navigate the process
and protect your interests.
Someone seasoned in rent-to-own contracts can ensure you’ve
specified everything in writing so that you understand the contract
and, ultimately, complete a successful transaction.
Rent-to-own, also known as a lease option, is a contract that
allows renters to lease a property, and at the end of the lease,
usually one to three years, have the option to purchase the home at
a predetermined price.
Ideal candidates for a rent-to-own option are potential home buyers
who dream of ownership but are also concerned they haven’t saved up
enough cash for a down payment, or have a low credit rating.
As a renter, you must be cautious before you sign a rent-to-own
contract. There are many stipulations within a contract, so make
sure you understand the lease options.
Here are six things to know before you lease a property with the
option to buy.
1. Determine a fair sales price. Under a lease-option contract,
you’re the only person who has the option to buy the property
during the stated period.
Although you can usually buy the home at any point during the term
of the contract, the sales price is locked in.
You may have locked in to a great deal if the home goes up in value
during the lease term. On the other hand, you could end up paying
more for the home if it depreciates and a set price was locked in
for a higher amount than what the home is worth when your
lease-option is up.
2. Complete a home inspection and document any necessary repairs.
As with any home purchase, the condition of the home should be
reflected in the price. Take photos to document the condition.
3. Verify whether there are any liens against the property that
will affect your home purchase. You don’t want any argument over
who owns title to the home.
4. Spell out the exit clause. Make sure the contract specifies
exactly what happens if you don’t exercise your option to buy the
home at the end of the lease.
5. Ensure all payments on the property are made, and the insurance responsibilities
are clearly spelled out.
6. Consult a professional. As always when purchasing real estate,
it’s important to hire an expert to help you navigate the process
and protect your interests.
Someone seasoned in rent-to-own contracts can ensure you’ve
specified everything in writing so that you understand the contract
and, ultimately, complete a successful transaction.