Concept of Rent to Buy
The concept of rent to buy is an idea that deals with renting a piece of property for a certain amount of time and then eventually becoming the owner of it. This is a common concept that is used in the real estate industry for buyers who need to buy a home but do not yet qualify for a home loan.
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Function
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The purpose of this type of purchase agreement is to provide a legitimate option for individuals who do not have good credit or a sufficient amount of money for a down payment. In order to buy a house through the traditional channels, you have to have decent credit and a steady source of income. Rent-to-buy options are provided by sellers who want to increase the odds of selling a piece of property and create additional income at the same time.
Benefits
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This process can be beneficial for both buyers and sellers. As a potential buyer, it allows you to obtain a piece of real estate even if you cannot be approved for a traditional mortgage. It also provides you with the option to purchase a piece of property in the future without committing yourself to do so. As a seller, you could get the benefit of bringing in regular rent payments during the term and then selling the property in the future.
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Time Frame
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The amount of time that a rent-to-buy agreement lasts can vary depending on the parties involved. For example, the parties in a rent-to-buy contract could agree on a two- or three-year rental term for a piece of property. At the end of that term, the renter could decide whether he wants to buy the property or let it go to someone else.
Down Payment
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At the beginning of a rent to buy agreement, the buyer typically has to put a certain amount of down payment on the property, which is called the option money. This is to secure the property, and it gives the renter the right but not the obligation to buy the property in the future. If the renter decides not to purchase the property, the option money is kept by the seller.
Warning
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These types of deals are notorious for creating problems for buyers. For example, if the seller of the property does not continue making the mortgage payment, the property could be foreclosed on. These agreements also may not specify who has to perform the repairs to the property. The seller thinks that the buyer should perform the repairs because the buyer plans on living there in the future, and the buyer thinks the seller should perform them since it is still the seller's property.
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