What Is Rent To Own?
Rent-to-own is a type of agreement in which a tenant rents a property and has the option to purchase the property
at a predetermined price at any point during the lease period. In this arrangement, a portion of the monthly rent
payment is often applied towards the eventual purchase price of the home. Rent-to-own can be a good option for people
who are not yet ready to purchase a home but want to build up their credit and savings to eventually become homeowners.
It's important to carefully review the terms of the agreement and have a clear understanding of the responsibilities
and obligations of both parties before entering into a rent-to-own arrangement.
What Is An Option Fee?
An option fee is a non-refundable fee paid at the beginning of a lease period, often in rent-to-own agreements,
which may be applied towards the purchase price of a property. It should not be confused with a rental security deposit.
How Much Will My Option Fee Be?
A customary option fee is typically three to five percent of the agreed-upon purchase price. However, the specific
amount can be negotiated between the parties, and a higher option fee may make your offer more attractive
to the seller. Additionally, a higher option fee can reduce the amount of financing needed as the lease
period approaches its end.
What Is Monthly Rental Credit?
Monthly rental credit is a provision in most rent-to-own agreements that sets aside a portion of the monthly rent
payment as a credit toward the eventual purchase of the property. The amount of the credit can vary, but can
be as high as 50% of the monthly rent payment. This allows the tenant to start building equity in the property
while they rent.
What About Less Than Perfect Credit?
Rent-to-own programs are designed for both the hopeful home buyer with less-than-perfect credit and the seller
who is having difficulty selling their property. Qualifying for these programs is based more on the ability to
make the monthly payments than on credit score. The lease period provides time to make repairs to one's
credit and improve their financial standing.
What If My Credit Isn't Good Enough When The Lease Expires?
It's important to speak with a loan officer before entering into any rent-to-own contract to get a realistic view of your
financial situation and prospects for obtaining financing when the lease period expires. If your credit is not good enough,
you can join a reputable credit repair program to work on improving your credit. During the rent-to-own period,
it's important to be responsible for your credit by paying off old debts and avoiding taking on new ones.
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