How do rent to own homes work?
Rent to own homes, or what we call Lease Options, allow homebuyers to lease a home while reserving the option to buy the home at any time either during the period of the lease or the end of the lease. During this stretch of time, our hands are tied and we are not permitted to advertise the residence as for sale.
There are two separate contracts used in a lease option agreement. The first is a standard rental lease that establishes what the monthly rental payment, terms, and regulations will be. The second is an option agreement which establishes that we are bound to sell the residence to the prospective purchaser at a predetermined price.
What is the option fee?
An option fee is often confused with a rental security deposit, although they are not the same. This fee is paid up front at the start of the lease, and gives you the exclusive option to buy the property at predetermined price and terms. In most cases, the option fee is not refundable, something that potential homebuyers should keep in mind. Whether or not the prospective homebuyer decides to go ahead and buy the residence in question, we will still keep the fee. In most of our lease option agreements, this option fee can be applied to the purchase price of the home.
How much will the option fee cost?
The option fee is an integral part of lease to own agreements. A usual option fee falls between four and six percent of the agreed upon purchase price. Of course, this is just an average figure, so it can vary, depending on each unique situation. The good thing about lease options is that the parties involved may negotiate the amount of the options fee. Usually, we are attracted to homebuyers that can put down more money on the home. Furthermore, the more cash that homebuyers can contribute as part of the option fee, the less they will need to finance elsewhere when the lease expires and they are ready to purchase the home.
Who should consider rent to own homes?
Many individuals find rent to own homes an attractive option. Previous sales have shown that the following people often consider lease option properties:
• Homebuyers who like to invest in real estate.
• Homebuyers fed up with being just renters and want to head toward real homeownership.
• Homebuyers that want to try out a new school district or a new neighborhood prior to making a commitment to it in the long term.
• Homebuyers dealing with damaged credit and who may be currently incapable of qualifying for appropriate mortgage rates because of credit problems.
• Homebuyers who need and want time to get their finances in order before making a home purchase.
Is there an obligation on the part of the tenant-buyer to purchase the home at the close of the lease period?
No, there is absolutely no obligation on the part of the renter to purchase the home at the close of the lease period. The seller gives the homebuyer the first option of buying the home, yet the ultimate decision of whether to purchase or not to purchase is totally up to the tenant-buyer.
Is the option consideration fee going to be given back to the tenant-buyer if he or she refuses to go through with purchasing the residence at the close of the lease period?
The option consideration fee is non-refundable. If one refuses to take advantage of the buying option, then previously paid option consideration money probably will not be returned. This feature of rent to own homes should be carefully considered by buyers before entering a lease option agreement.