Rent to Own Vs. Buy on Contract
A rent-to-own contract is a form of alternative financing for a home purchase. It allows the potential buyer to put money away for the down payment and lock in a deal for a future date. A buy-on-contract agreement is a traditional sale in which the parties agree to proceed with the sale immediately after signing the deal.
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Function
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A rent-to-own contract functions as assurance to the buyer-renter that the landlord will sell him the home at a future, specified date for a certain amount. Although buyers can opt out of the lease option, both parties have a tentative agreement. The buyer pays rent for the contract term and lives in the home. A buy-on-contract agreement does not provide a long-term rental agreement and generally does not allow the buyer to live in the home before it is purchased.
Benefits
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A rent-to-own allows renter-buyers to accumulate the money for a down payment by paying a certain amount each month in addition to rent. It also allows them to build or repair credit so they can get a decent loan when it's time to buy and allows them to "try out" the house, according to Bankrate.com. Meanwhile, rent payments can generate positive cash flow for the seller, and the seller has a long-term tenant--one who will likely take care of the property.
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Time Frame
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According to Bankrate.com, a rent-to-own contract lasts between two years and five years. A buy-on-contract period lasts a lot less time, generally 30 days to 60 days, depending on how long it takes for the buyer to attain financing.
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References
- Photo Credit My Home for sale image by Primabild from Fotolia.com
