As a potential rent-to-own tenant, it is important to understand the legal contract that you will be entering into. Rent-to-own agreements, also known as lease-purchase agreements, can be a great way to become a homeowner if you don`t qualify for a traditional mortgage or need time to build up your credit.
Here are some key terms to look out for in a legal contract for rent to own:
1. Option fee: This is a non-refundable fee paid by the tenant to the landlord at the beginning of the lease term. It gives the tenant the option to purchase the property at a later date for an agreed-upon price. The option fee is typically 1-5% of the purchase price.
2. Monthly rent: Rent-to-own tenants typically pay a higher monthly rent than traditional renters. This is because part of their rent will go towards building up a down payment for the purchase of the property. It is important to understand how much of your monthly rent will be credited towards the purchase price.
3. Purchase price: The purchase price of the property is agreed upon at the beginning of the lease term. It is important to have a clear understanding of how the purchase price will be determined, especially if the property is appraised at a higher or lower value than the agreed-upon price.
4. Maintenance and repairs: Rent-to-own contracts usually require the tenant to take care of all maintenance and repairs on the property. It is important to understand what repairs are the tenant`s responsibility and what repairs are the landlord`s responsibility.
5. Default: If the tenant is unable to purchase the property at the end of the lease term, they may be in default of the contract. It is important to understand the consequences of default, which may include losing the option fee and any rent credits that were accumulated.
Before signing a legal contract for rent to own, it is important to consult with a real estate attorney to ensure that your rights are protected. Understanding the terms of the contract will help you make an informed decision about whether rent to own is the right path for you to become a homeowner.