Learning About The Rent to Own Process

The appeal of homeownership feels more powerful today than ever before. And if you are like many homebuyers, you’ll need to get a mortgage to finance the purchase of your new home. Traditionally to qualify you need good credit and cash for a down payment. There is however an alternate route to homeownership that we want to talk about here, the rent-to-own process and what that looks like. 

A rent-to-own agreement, in which you rent a home for a certain period of time, with the option to buy it before the lease expires has become a popular option for first time buyers. This agreement consists of two parts: a standard lease agreement and an option to buy. Lease-option contracts give you the right to buy the home when the lease expires, while lease-purchase contracts require you to buy the house. You pay rent throughout the lease, and in some cases, a percentage of the payment is applied to the purchase price. 

Non-refundable Upfront Fees. In a rent-to-own agreement, the buyer pays the seller a one-time, upfront fee called the option fee. This usually non-refundable fee is what gives you the option to buy the house by some date set in the future. This fee is often negotiable as there’s no standard rate, but typically it ranges between 1% and 5% of the purchase price.

Lease-Option vs Lease-Purchase. Different types of rent-to-own options are out there, and it is important to note the differences. Lease-option contracts give buyers the right, but not the obligation, to purchase the home once the lease expires. If you choose not to buy the home at the end of the lease, the option simply expires, and you can walk away without any obligation to continue paying rent or to buy. With a lease-purchase contract this is not typically the case. 

Purchase Price Agreement. Whether the buyer and seller agree on the purchase price at contract signing or at the expiration of the lease, your rent-to-own agreement should specify when and how the home’s purchase price is determined. As you pay rent throughout the lease terms, you’ll want to understand what portion of each payment is applied to the eventual purchase price. 

We hope this will help you understand that there are alternative ways to homeownership. And as always consult with a real estate professional who can help you find your perfect McAdams home. We offer specially curated communities in the Wilmington Area of North Carolina, click here for current incentives. Or if you own a preferred lot, you can choose from our portfolio of floor plans to personalize with numerous design options. Contact us today to get started on your new home journey.

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