Typical Lease-to-Own Terms
People who want to own a home, but cannot qualify for a traditional home loan through a bank, have another option for home ownership---lease to own, which allows a buyer to lease the home for a certain time from the seller, then purchase it at a later date.
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Rental Agreement
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Two documents typically make up a lease-to-own agreement: the rental agreement and option-to-buy agreement. The rental agreement lays out the terms of lease, including monthly payments and length of lease before purchase, according to the U.S. Lease Option website.
Option-to-Buy Agreement
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The option-to-buy agreement outlines when the property will be purchased and for what amount. The agreement sets the purchase amount, but that amount can be negotiated by both parties later in the contract, according to the Mortgage Professor.
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Option Fee
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The option fee paid by the buyer gives the seller an incentive to take the house off the market and lease to that buyer. Option fees usually run between 1 percent and 2 percent of the sales price. If the buyer does not fulfill the contract and does not purchase the home at the end of the agreement, the option fee goes to the seller. If the contract is fulfilled, the option fee goes toward the buyer's down payment, according to Realtor Magazine.
Rent Credits
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Rent credits determine how much of the rent will go toward the final purchase price of the home. A seller can decide to apply all of each month's rent or can apply a portion of the rent to the final purchase price. Rent credits allow buyers to build equity in the home while renting, according to AlllieMae.org.
Maintenance Clause
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Some sellers can choose to add a maintenance clause into the lease-to-own contract. The clause would make the tenant responsible for maintenance of the home while leasing and responsible for any costs associated with general upkeep, according to JSC Investments.
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References
Resources
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