How Do Rent-to-Own Home Contracts Work?

Rental Agreement

A rent-to-own contract first requires a rental agreement. This agreement includes the standard items for renting the property (i.e., rent amount, rent payment schedule, pet and insurance requirements, damages to property, etc.). The differentiating factor in a rent-to-own agreement typically involves a monthly payment towards a down payment on purchasing the home, the landlord's inability to sell the home when occupied by a rent-to-own tenant and an agreed-upon purchase price for the home at the end of the rental agreement. Keep in mind that every contract is different and that this is a general outline for a possible rent-to-own contract.

Accumulated Down Payment

A rent-to-own contract accumulated down payment is usually included in the monthly rent. The extra payment is set aside by the landlord for a down payment in the event of purchase. The landlord is responsible for receiving this money and recognizing it as a possible down payment. Tenants are not required to purchase at the end of a rent-to-own contract but will forfeit the extra monies as compensation to the landlord for her inability to sell to another interested party during the contract term. In the event of purchase, the money set aside for a down payment will be subtracted from the agreed purchase price.

Purchase Agreement

The purchase price for the home should be outlined in the original rent-to-own agreement. This price will be the selling price at the end of the rental agreement. The agreed-upon purchase price will then subtract the accumulated down payment in the event of purchase. After purchase, the tenant will become the owner of the property, and the landlord will have no financial interest thereafter.