Rent a House to Own

Mary Gormandy White
Is rent to own right for you?
Is rent to own right for you?

If you want to become a homeowner, but don't have the money to make a down payment or don't quite meet the criteria to qualify for a mortgage loan, you may want to consider looking for a seller who is willing to enter into a rent a house to own agreement with you.

What Does Rent a House to Own Mean?

The term "rent to own" is very descriptive of what this type of agreement represents. When you enter into a rent to own agreement with a property owner, you are entering into a legal agreement that specifies the terms of the immediate rental and eventual purchase. Instead of buying the home outright, you are agreeing to rent it for a period of time and to purchase the property at the end of that time frame. The title to the home stays with the seller during the rental period, and the individual functions as a landlord throughout that time.

Both the monthly rent amount and the purchase price are agreed upon and specified in the lease-purchase agreement. Additionally, provisions are included for what portion (if any) of the rent paid in during the rental period will be applied to the purchase price of the home when it is time for the tenant to buy the property outright. In many cases, motivated sellers will agree to let most or all of the rent go toward buying the home.

Rent to own agreements also include specifics about the responsibilities of the tenant/purchaser and landlord/seller. This may include details such as:

  • Rent due dates
  • Consequences of the failure to pay
  • Property maintenance obligations
  • The time frame during which the purchase must be executed
  • Any other relevant details

Regardless of your role in this type of transaction, including these details in the rent to own contract protects your interests.

Rent to Own Seller Benefits

Many sellers who are willing to enter into rent a house to own agreement find themselves having to move out of a property that is mortgaged and that they are not able to sell outright right away. For example, people who are transferred to a new city for work or who need to move to another location to care for an ailing family member are not always able to sell their homes immediately. Rather than continuing to incur the out of pocket monthly mortgage expense on the home while trying to sell it, they opt to rent it to a tenant with an interest in purchasing the home to cover their ongoing mortgage expenses.

Rent to Own Buyer Benefits

Achieving the dream of home ownership is something that many people have an interest in doing, but often find it difficult to build up a down payment or to meet the creditworthiness criteria necessary to qualify for a mortgage loan. So rather than continuing to rent knowing that the money spent will not help them eventually buy a home, many people in this situation opt to seek the opportunity to rent a house to own. While still tenants, occupying a rent to own allows people to utilize rent money toward the home purchase, each month moving one step closer to becoming homeowners.

Important Rent to Own Considerations

rent to own

It's important for tenants/buyers and landlords/sellers to realize that a rent to own agreement does not necessarily ensure that one day the title to the property will transfer from the current owner to the person who is renting the property with the expectation of one day owning it. While the seller will be obligated to sell the property to the tenant at the agreed upon price when it is time to do so, circumstances may prevent the sale from going through.

For example, there's always a possibility that at the end of the rental period the tenant will be unable to qualify for a mortgage loan. Unless the seller wants to extend a vendor's lien offering an owner finance option to the tenant, the purchase will not be able to proceed. If the purchase does not go through, the landlord and tenant may want to enter into a new lease or lease/purchase agreement, or the tenant may have to vacate the property freeing the owner to seek a new tenant or purchaser for the home.

Rent a House to Own